The return of retail investors to the crypto market will depend on how aggressively the Federal Reserve cuts interest rates in 2026, according to analyst Owen Lau, who serves as the managing director at Clear Street.
During an interview with a CNBC journalist on Tuesday, Lau said retail is likely to be excited to make a comeback to the market if the US Central Bank decides to continue lowering rates in the coming year. He added that institutions could also channel more capital into the crypto sector in a low-rate environment.
Why Interest Rates Matter in Crypto
Interest rates influence the behavior of crypto investors. For example, when the Fed announces a rate, investors consider the move bullish and usually allocate more money to crypto, resulting in increased liquidity, which boosts prices. On the other hand, if the Fed hikes rates, cryptocurrencies become unattractive, driving investors toward traditional investments such as term deposits and bonds.
Fed Signals Openness to Adjust Rates in 2026
In its December minutes, the Federal Reserve indicated that it would adjust interest rates in 2026 if that would help achieve its economic goals. However, data from prediction markets show that market players are skeptical about additional rate cuts. For example, Polymarket shows only a 14% chance of a rate reduction in January. Furthermore, the probability of an interest rate cut in March is below 50%.
Market Sentiment is Still Declining
When the US Central Bank announced its first rate cut of 2025 in September, Bitcoin and other leading digital currencies recorded impressive performance, with the former reaching a new all-time high of $125,130 on October 5.
Five days later, however, Bitcoin saw massive losses following a $19 billion liquidation event, with its price plummeting below $100,000 within a few weeks. The coin is currently trading at $88,428, down 29% from its peak price. This drop has soured crypto market sentiment based on the Crypto Fear & Greed Index, which sits in the ‘Extreme Fear’ territory, signaling that investors are uninterested in digital assets at the moment.
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