Retail interest in cryptocurrencies could rebound in 2026 if the US Federal Reserve continues to cut interest rates, according to market analysts.
Analysts say lower borrowing costs typically encourage investors to move back into risk assets such as digital currencies.
Clear Street managing director Owen Lau identified Federal Reserve policy as a major factor shaping crypto market behaviour next year.
Federal Reserve policy decisions will be one of the key catalysts for the crypto space in 2026.
Owen Lau said.
Retail will be more excited to get into crypto, institutions will be more excited to get into crypto.
Owen Lau stated.
Rate cuts generally reduce yields on bonds and savings products, making alternative assets more attractive to investors.
Cryptocurrencies often benefit during periods of monetary easing as liquidity conditions improve across markets.
Despite this view, traders remain uncertain about how aggressively the Federal Reserve will ease policy in 2026.
The central bank has already delivered three interest rate cuts of 25 basis points each during 2025.
Market participants are debating whether those cuts signal a longer easing cycle or a temporary adjustment.
Minutes from the Federal Reserve’s December meeting suggested officials remain flexible on future policy moves.
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
The minutes said.
Prediction markets indicate limited confidence in near-term rate cuts at the start of 2026.
Data from Polymarket shows only a 15% probability of a rate cut in January.
Expectations improve slightly for March, with traders assigning a 52% chance of a cut.
Bitcoin (CRYPTO:BTC) reacted strongly to earlier rate cuts during 2025, with prices surging after the first reduction in September.
The rally peaked in early October before a sharp liquidation event erased billions from leveraged positions.
Subsequent rate cuts in October and December failed to sustain bullish momentum.
Federal Reserve officials were reportedly divided over the necessity of the December rate cut.
Bitcoin has since fallen more than 29% from its October peak, according to market data.
The decline in price has weighed heavily on overall crypto market sentiment.
The Crypto Fear and Greed Index has remained in extreme fear territory since mid-December.
On Wednesday, the index recorded a reading of 23, reflecting persistent investor caution.
At the time of reporting, Bitcoin price was $87,686.47.