of cryptocurrency market The Federal Reserve has entered a period of cautious fiscal consolidation just as it prepares for one of the most politically fraught transitions in decades. Fed Chairman Jerome Powell’s term ends in May 2026, and President Donald Trump has already installed allies in key board seats. This change could redefine the financial landscape for the next cycle, and with it the trajectory of risk assets such as cryptocurrencies.
Read the chart: The calm before the policy storm
Historically, cryptocurrency markets have thrived in environments with abundant liquidity. Bitcoin bull markets in 2017, 2021, and mid-2024 were all supported by dovish Fed conditions and balance sheet expansion. As the chart shows, the market capitalization of cryptocurrencies is currently hovering around $2.94 trillion, volatility is contained within the Bollinger Bands, and the price trend is just below the 20-day moving average (blue line). Traders appear to be in wait-and-see mode, which reflects more macro uncertainty than sectoral weakness.
of bollinger bands It has tightened considerably, which is a classic sign of impending volatility. The upper band sits around $3.12 trillionwhile the lower support floats nearby. $2.84 trillioncreating narrow trade corridors. This compression suggests that the market is expecting a breakout but lacks a clear catalyst in the short term.
Momentum indicators indicate a decline in selling pressure, but a reversal has not yet been confirmed. The market’s failed attempts to reclaim mid-band resistance since early December indicate waning confidence. If the Fed signals early rate cuts or a more accommodative tone, it could outweigh the rate hikes. $3.0 trillion to $3.1 trillion May trigger new bull leg targeting $3.25 trillion to $3.5 trillion. Conversely, if hawkish rhetoric resurfaces, another attempt could be made. $2.8 trillionfollowed by a deeper liquidity sweep $2.5 trillion (0.618 Fibonacci Zone).
Combining political influence and monetary policy
meanwhile Trump’s new Fed appointments Although there may be a trend toward lower interest rates, institutional inertia Central banks remain strong. economist morgan stanley and wells fargo The Fed’s policy framework is expected to remain largely intact from 2026 to 2027, even with a change in leadership. This means that rather than a sudden U-turn in interest rate policy, it will likely be a gradual easing linked to cooling inflation and stabilizing employment.
Still, the market continues to trade. expectationsnot reality. If investors believe that President Trump’s new appointees will prioritize growth over controlling inflation, risk appetite could rise prematurely, triggering a wave of speculation across crypto assets, particularly Bitcoin and Ethereum, as traders price in the prospect of weaker capital and a weaker US dollar.
The relationship between macro and cryptocurrencies in 2026
From 2022 onwards, the correlation between cryptocurrencies and US monetary policy will become stronger. The subdued price action on the charts since November is consistent with broader dollar resilience and real yields remaining positive. If yields start to fall in mid-2026, an expected outcome under a more dovish Fed, capital could move back into risk assets. In such a case, stablecoins, DeFi tokens, and large altcoins could see similar inflows. 2020-2021 liquidity cycle.
on the other hand, $3 trillion psychological barrier Still important. An increase in volume and a close above that mark would signal that the market is ready for another move higher. However, if it falls below $2.8 trillion, sentiment could reverse and the total market capitalization could fall below $2.8 trillion. $2.5 trillion to $2.6 trillion support clusterlong-term buyers may re-enter.
What this means for traders and investors
The 2026 Fed transition will introduce both. Policy risks and opportunities. If Jerome Powell’s successor prioritizes growth and lowers interest rates sooner than expected, cryptocurrencies could lead traditional markets and spark an early bull market. However, if the Fed’s continuity story holds, we should expect flat accumulation through the second quarter of 2026.
At the moment, traders should be aware of the following situations: volatility breakout From the current Bollinger squeeze. Positioning ahead of the February-May policy window could be key. The broader takeaway? Crypto markets are swirling for macro-driven moves, and the next Fed chair could determine that direction more than halving or ETF approval.
Prediction: Cryptocurrency market scenario in 2026
- Bullish case: Transition to a dovish Fed will trigger liquidity recovery → Market capitalization will exceed $3.2 trillion, aiming for $3.8 trillion by the second half of 2026.
- Base case: Gradual easing with stable inflation → in the range of $2.7 trillion to $3.2 trillion until Q3 2026.
- Bearish case: Resurgent inflation or policy conflict → $2.5 trillion retest by recovery in 2027.
The chart contraction and subdued volatility reflect investor hesitation in the face of potential seismic shifts in Fed leadership. Regardless of whether President Trump’s influence accelerates rate cuts, the next 12 months will determine whether crypto integration begins to expand or deeper. The market’s next breakout won’t just be technical. It’s going to be political.
