Bitcoin and crypto are treading water after wild swings that BlackRock’s chief executive warned could be about to get a lot worse.
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The bitcoin price, down on this time last year as traders scramble to get ahead of what could be a devastating January shock, has struggled since hitting a peak of $126,000 per bitcoin in October.
Now, as Shark Tank star investor Kevin O’leary issues a Federal Reserve warning, traders are looking past the Fed’s December interest rate decision to whether its going to start growing its $6.5 trillion balance sheet.
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Federal Reserve chair Jerome Powell is poised to begin growing the Fed’s $6.6 trillion balance sheet—something that could lift stocks, crypto and the bitcoin price.
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“Are they going to hold it flat or start growing it,” Michael Kelly, global head of multi-asset at the $215 billion PineBridge Investments, told MarketWatch, referring to the Fed’s balance sheet that it has shrunk from over $9 trillion in the aftermath of huge Covid-era expansion.
Strategists at Bank of America have predicted the Fed will this week announce it will grow its balance sheet by $45 billion per month from January, with the Fed buying at least $20 billion a month “for natural balance sheet growth purposes” and another $25 billion a month “to reverse the reserve over drain, for at least the first six months” of 2026.
“We are out of consensus early and in size,” Bank of America analysts led by Mark Cabana wrote in a client note seen by ZeroHedge.
Others have forecast the Fed will start growing its balance sheet later next year.
“If you zoom out, the Fed naturally will start bill purchases next year as part of a reverses management operation,” Roger Hallam, Vanguard fixed-income group’s global head of rates, told MarketWatch. “Because as the economy’s demand for reserves expands, the Fed naturally will meet that.”
The Fed’s quantitative tightening program, which began in 2022, has reduced the Fed’s balance sheet to $6.5 trillion, from around $9 trillion at its peak, putting pressure on risk assets such as bitcoin as the Fed tries to suck liquidity from the system.
The Fed ended its quantitative tightening program at the beginning of December.
Cathie Wood, the chief executive of technology and disruption investor Ark Invest, earlier pointed to the Fed’s easing liquidity conditions when she reaffirmed Ark’s long-term $1.5 million bitcoin price prediction.
The market is meanwhile pricing in a near-90% chance of the Fed cutting interest rates at the end of the December Federal Open Market Committee (FOMC) meeting on Wednesday.
“For now, attention is on the Federal Reserve’s interest rate decision on December 10, where a cut is largely expected. On its own, such a move may offer little upside to bitcoin’s price, as it’s likely already priced in,” Koinly chief executive Robin Singh said via email.
“The greater risk lies in deviation from expectations. Any surprise that runs counter to market assumptions could unsettle sentiment and trigger further downside, particularly with the volatile confidence in recent times.”
Traders are closely watching for any indication of whether interest rates will continue to fall in early 2026.
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The bitcoin price has fallen sharply since October as traders brace for a Federal Reserve game-changer that could blow up the bitcoin price, crypto and stock markets.
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“The uncertainty with which bitcoin is hovering around the $90,000 mark reflects a prevailing fear that tomorrow’s FOMC meeting will be somewhat of an anticlimax,” Nic Puckrin, investment analyst and co-founder of The Coin Bureau, said in emailed comments.
“Though a rate cut is now expected by nearly 90% of market participants and largely priced in, it’s the forward guidance that matters, and investors appear to be betting on a ‘hawkish cut’ tomorrow.”
