Crypto has opened the week lower, with Bitcoin trading around $86,000 and Ethereum near $3,000, as markets digest recent macro developments. Last Wednesday, as expected, the Fed delivered a 25-basis point rate cut to 3.50–3.75% in a 9-3 vote. Two members voted to hold rates unchanged, while one pushed for a larger 50-basis point cut, underscoring a committee that remains split but increasingly focused on downside risks to growth. In his press conference, Chair Powell placed greater emphasis on the labour side of the mandate, noting rising unemployment. While he acknowledged rates are now within a plausible range of neutral, Powell stressed that January remains fully data-dependent, with a heavy calendar of releases still to come.
Beneath the headline decision, the Fed has quietly begun expanding its balance sheet again through “reserve management purchases”. The New York Fed has announced $40 billion of Treasury bill buying over the coming month, with banks now projecting substantially larger purchases through 2026 as officials work to stabilise funding markets and rebuild reserves. While officials continue to resist the quantitative easing label, the market impact is familiar: easing pressure in short-term funding, wider swap spreads, and improved liquidity conditions, which markets have historically treated as supportive for risk assets like crypto.
However, easier liquidity is not leading to indiscriminate risk-taking. Instead, investors are becoming more selective, particularly in AI-linked equities, a theme we have highlighted in previous newsletters as a key driver of global risk appetite. Hedging activity in credit markets tied to names such as Oracle and Meta has surged as investors reassess the risks of debt-funded AI expansion. This isn’t a default call, but it does signal more cautious positioning at the core of the risk complex. That shift matters because AI-linked equities currently sit at the centre of global risk allocation, and changes in how they are treated tend to ripple across high-volatility assets like crypto.
At the same time, crypto’s structural footing continues to strengthen. In the UK, the government has confirmed plans to bring cryptoassets fully into the regulatory perimeter by 2027, which will place firms under FCA supervision. Clearer rules reduce long-term uncertainty, support institutional participation, and reinforce the direction of travel toward crypto being treated as part of the financial system rather than outside it.
Taken together, the message is becoming clearer. The Fed is easing, liquidity is improving, investors are becoming more selective about where risk is taken, and crypto continues to move toward the mainstream. Whether markets lean into that setup now depends less on policy and more on conviction. If confidence builds, the foundations are in place. If it doesn’t, the tension between improving liquidity and rising selectivity will define the coming weeks.