Will Bitcoin Drop Below $70,000 if the Fed Pauses Rate Cuts in Early 2026?

The crypto market faces potential headwinds as the Federal Reserve signals possible policy shifts in the first quarter of 2026. Recent market data reveals a cautionary tale: despite three consecutive rate cuts throughout Q4 2025, total cryptocurrency market capitalization has declined by over $1.45 trillion from its October peak, suggesting that traditional monetary easing alone may not sustain bullish sentiment.

The Inflation Conundrum: Why Fed Stability Matters

If inflation persists and the Federal Reserve decides to halt its rate-cutting cycle in Q1 2026, the implications for digital assets could be severe. BTSE’s Chief Operating Officer Jeff Mei has cautioned that such a policy shift could trigger significant downside pressure, with Bitcoin potentially testing support levels around $70,000 and Ethereum retreating to approximately $2,400. This dual-asset forecast underscores how closely crypto valuations remain tethered to traditional monetary policy decisions.

Beyond Price: Understanding Market Psychology

The disconnect between the Fed’s Q4 rate cuts and the crypto market’s tepid response raises an important question about investor sentiment. The fear and greed index crypto metric has become increasingly relevant here—even as central banks pursue accommodative policies, market psychology may not immediately shift. Investors are pricing in future uncertainty rather than celebrating current policy ease, a dynamic that could intensify if rate cuts reverse course.

The Hidden Stabilizer: RMPs and Liquidity Injections

However, not all hope is lost. Mei highlighted an often-overlooked dimension of Fed operations: reverse mortgage procedures (RMPs) and other liquidity-injection mechanisms functioning as a “hidden QE.” These tools, independent of official rate decisions, may continue channeling capital into markets even if the Fed formally pauses rate cuts. This backstop could provide crucial support to crypto prices, preventing the sharper declines that might otherwise accompany a hawkish policy pivot.

What This Means for Your Portfolio

The 2026 Q1 outlook hinges on an intricate balance between persistent inflation concerns, policy uncertainty, and the Fed’s ability to deploy alternative support mechanisms. Crypto traders should monitor both rate decision signals and the fear and greed index crypto readings as leading indicators of market turning points. The $1.45 trillion decline already witnessed suggests that the cryptocurrency sector is repricing risk—any additional policy shock could accelerate this adjustment.