Bitcoin Drops Despite Fed Rate Cut: Analysts Warn of 2026 Risks

Despite the U.S. Federal Reserve slashing interest rates by 25 basis points—a move typically considered bullish for risk assets—Bitcoin trended lower, dropping roughly 2% to trade just under $90,200, according to CoinGecko data. Analysts told Decrypt this is a classic ‘sell the fact’ scenario, where the market had fully priced in the cut ahead of the official announcement. ‘Bitcoin’s decline after the rate cut is not a reaction to the cut itself, but rather the market pre-pricing a more complex future macro environment,’ explained Tim Sun, a senior researcher at HashKey Group. This sentiment was mirrored in prediction markets; on Myriad, owned by Decrypt’s parent company Dastan, the probability assigned to a 2025 ‘Santa rally’ for Bitcoin stood at just 17%.

The immediate market calculus suggests the benefits of the current easing are being overshadowed by future constraints. Although Fed Chairman Jerome Powell avoided explicit hawkish guidance, the central bank’s updated ‘dot plot’ indicated downward revisions to rate-cut expectations for 2026. This signals to market participants, including those at firms like Swan Bitcoin, that the current monetary easing cycle may be nearing its end, limiting a key traditional catalyst for asset appreciation.

Looking beyond immediate monetary policy, analysts are pinpointing the 2026 U.S. midterm elections as a pivotal macroeconomic risk. Tim Sun of HashKey Group outlined a scenario where the political landscape could create a volatile mix for markets. ‘The U.S. will hold midterm elections in 2026, and the Trump administration will need looser fiscal policy and a more dovish Fed to maintain economic and market prosperity,’ Sun told Decrypt. This could lead to a brief period combining aggressive fiscal stimulus with monetary easing.

However, such a policy combination is historically prone to rekindling inflation. ‘This means the U.S. could briefly see a policy mix of fiscal stimulus plus monetary easing,’ Sun said, adding that ‘such a combination is highly prone to rekindling inflation, pushing long-term rates higher again.’ For an interest-rate-sensitive asset like Bitcoin, higher long-term rates translate into significant pressure, as they increase the opportunity cost of holding non-yielding assets and typically dampen appetite for risk across global markets.

Compounding these political risks is a structural shift in the inflation landscape, driven by technological investment. Analysts highlight that the ongoing surge in AI-driven capital expenditure is creating a new source of persistent, or ‘sticky,’ inflation. This spending inflates costs for critical inputs like energy and infrastructure, which are embedded across the economy. As John Haar, managing director of Swan Bitcoin, noted to Decrypt, the Fed’s actions this week—including ‘reserve management purchases’ of T-Bills with an expectation to buy $40 billion over 30 days—mark its first balance sheet expansion since quantitative tightening began in mid-2022, barring the March 2023 banking crisis. This subtle shift underscores the complex backdrop against which the Fed operates.

The persistence of inflation from AI capex and potential post-2026 fiscal policies means the Federal Reserve may have less room to provide significant monetary support in the future. This environment of constrained easing potential directly limits the upside for risk assets, including Bitcoin. The market’s bearish tilt, as reflected in the price action and prediction market odds, is therefore not merely a short-term correction but a recalibration for a future where traditional bullish catalysts like rate cuts are outweighed by enduring inflationary pressures and the specter of higher long-term rates.