The significance of Trump's announcement as Fed Chair in the first week of January 2026 on market expectations.

The era of aggressive interest rate cuts is approaching the crypto market.

The Fed has begun laying the groundwork for monetary easing, signaling a shift towards liquidity expansion through its monthly $40 billion Treasury bond purchasing program starting in December 2025. President Trump’s appointment of a new Fed chair represents a key turning point for the cryptocurrency market, as the new leadership will shape the trajectory of interest rates in 2026. Currently, the Fed funds rate stands at 3.625%, down from 5.37% in September 2024, but news from the new administration suggests that larger rate cuts are anticipated. Trump has publicly advocated for interest rates to be lowered to 1% or lower, a position that starkly contrasts with the more cautious approach depicted in the Fed's December dot plot forecast, which suggests only one rate cut is expected in 2026.

The impact of digital assets is huge. Bitcoin, Ethereum, and the broader cryptocurrency valuations are inversely correlated with real interest rates; as borrowing costs decline, alternative assets become more attractive to institutional and retail investors seeking yield. The appointment of the Fed chair will influence the crypto market in 2026, depending on whether the new chair aligns with the government's rate-cutting priorities or maintains institutional independence. Historical patterns indicate that periods of declining interest rates coincide with cycles of appreciation in cryptocurrency assets. In the current environment of Treasury yields, the 10-year Treasury yield is 4.182%, and the 30-year yield is 4.851%, creating significant space for rate cuts, which will compress bond yields and redirect capital towards more volatile digital assets. Investors using platforms like Gate should closely monitor upcoming economic data and FOMC communications, as employment data and inflation reports will immediately trigger a repricing of the market's expectations for rate cuts.

Why Kevin Hassett and pro-Bitcoin candidates signal a liquidity boom for digital assets

The composition of the new government's economic team indicates a policy stance that supports growth and is accommodative, which also extends to cryptocurrency regulation and monetary expansion. Kevin Hassett as the chief economic advisor, along with other advocates supporting Bitcoin policies, indicates an acceptance of the integration of digital assets into the broader financial markets. This marks a departure from the previous Fed leadership's neutral to skeptical stance on cryptocurrency adoption. The appointment of Trump as the Fed Chairman in January 2026 will be crucial for the positioning of cryptocurrencies, as the chosen chairman will determine whether the Fed collaborates with the Treasury to actively expand the money supply, a situation that has historically favored speculative assets, including blockchain-based tokens.

Liquidity expansion affects the cryptocurrency market through multiple transmission channels. First, lower borrowing costs reduce the opportunity cost of holding non-yielding assets (such as Bitcoin), giving digital currencies an advantage in competing with traditional fixed-income instruments. Second, loose monetary policy typically flows into venture capital and growth stock financing, areas deeply rooted in the development of Web3 infrastructure. Third, weak dollar conditions—often accompanied by aggressive rate cuts—increase international demand for alternative stores of value, benefiting cryptocurrencies as borderless settlement mechanisms. The impact of rate cuts on Bitcoin and crypto assets clearly reflects these dynamics: during the rate cut cycle from 2020 to 2021, Bitcoin rose over 400% as monetary policy reached the zero lower bound. The current market structure differs from 2020, with significant increases in institutional positions and derivatives markets, but the fundamental relationship between real interest rates and risk asset valuations remains unchanged. The announcement in January 2026 will recalibrate investors' expectations for the trajectory of monetary policy, directly impacting options pricing, futures open interest, and the spot market valuations of major digital assets.

How will changes in monetary policy reshape the valuations of Bitcoin and Ethereum in 2026?

The monetary policy expectations for the digital asset framework in 2026 largely depend on the new Fed chairman's commitment to interest rate normalization and continued easing. Current market pricing reflects significant skepticism about aggressive rate cuts, and the forward rate curve indicates only modest declines by mid-2026. However, a Fed chairman aligned with government preferences for growth could significantly accelerate the rate cut timeline, compressing the term premium embedded in long-term Treasury yields and reallocating capital flows into cryptocurrencies and alternative assets. Bitcoin's valuation mechanism uses expected real interest rates as a key variable; a 100 basis point reduction in interest rates typically corresponds to a 15-25% increase in spot prices during a bull market cycle.

Ethereum presents a unique dynamic influenced by network usage, decentralized finance activities, and competition for staking yields. As nominal yields decline due to interest rate cuts, the 3-4% annual staking return on Ethereum becomes increasingly attractive compared to government bond alternatives. This yield differential stimulates capital to shift from traditional fixed income holdings to blockchain-based income-generating assets. The monetary policy framework established by the new Fed chair will determine whether these yield gaps narrow or widen; a highly accommodative policy environment supports the flow of yield-seeking capital into Ethereum staking and other Web3 yield strategies. Institutional investors managing multi-asset portfolios have allocated 1-2% of their funds to cryptocurrency positions as a hedge against inflation and for portfolio diversification. Declining real interest rates further reinforce these allocation decisions by lowering the real return floor of fixed income benchmarks and increasing the relative attractiveness of value storage and yield assets.

The valuation environment in 2026 may see Bitcoin and Ethereum trading as relevant risk assets during the initial rate-cutting cycle. If the new government pursues a more aggressive monetary expansion than the market currently expects, a decoupling may occur. Technical levels support this scenario: Bitcoin faces resistance about 20-30% above its previous historical high, while Ethereum's consolidation within the range suggests a potential breakout if liquidity conditions improve through rate cuts. Trading platforms, including Gate, offer spot and derivative instruments, enabling mature investors to construct strategies that leverage these interest rate policy-driven valuation expansions.

The Gamble of Fed Independence: When Political Influence Collides with Market Stability

The impact of changes in the Fed leadership on the market presents a fundamental issue for the Web3 community regarding institutional credibility and the predictability of monetary policy. Jerome Powell has maintained nominal independence of the Fed under tremendous political pressure, and his actions in December—despite the executive branch's call for interest rate cuts, he kept rates unchanged—demonstrate his determination to resist executive pressure. The new chair faces a direct tension between policy independence and alignment with executive goals. Historical precedents are important here: Arthur Burns catering to political demands for interest rate cuts in the 1970s led to a stagflation environment that damaged the long-term credibility of the Fed. The modern independence of the Fed is precisely to prevent this politicization of monetary policy.

For cryptocurrency investors, the issue of independence has operational significance. Unpredictable policy changes driven by political considerations can create volatility, increasing trading spreads and widening options pricing ranges. In contrast, a transparent policy framework consistent with coherent economic principles (whether accommodative or tightening) allows for more effective price discovery and capital allocation among digital assets. Trump's monetary policy framework for the crypto market depends on whether the new chair maintains a separation between political preferences and technical economic analysis. The market's reaction to upcoming economic data will quickly reveal this balance; if the new Fed chair mechanically lowers interest rates in response to unfavorable inflation data according to government direction, credit spreads will widen, currency depreciation will accelerate, which may trigger adverse competitive devaluation dynamics for dollar-denominated cryptocurrency valuations.

The outcome in 2026 may require a compromise between these extremes. The new Fed chair will moderately cut interest rates while meeting government demands, and maintain sufficient easing to support economic growth. This scenario is optimal for the cryptocurrency market, allowing for moderate liquidity expansion without triggering institutional credibility damage or currency instability. Real interest rates are expected to decline by 100-150 basis points before 2026, supporting the appreciation of cryptocurrency assets without causing the policy credibility crisis seen in the 1970s stagflation or the recent reversal of central bank policies. Investors should closely monitor the Fed's communications after the January announcement, as the chair's statements regarding policy rules, data-driven decisions, and independence will indicate whether political pressure dominates the technical policy framework or if institutional safeguards remain intact.