After a disappointing 2025, Bitcoin and cryptocurrencies could be set to take-off in 2026, thanks to the increasingly loose monetary policies of the central bank.
In this post, we will briefly discuss the exponential debt burden, how the Federal Reserve (the Fed) is handling it, and what impact their policies may have on cryptocurrency prices.
Ballooning Debt
After the Great Financial Crisis of 2008, and nearly a decade of 0% interest rates (ZIRP), the US federal debt had increased from $10 trillion to $23 trillion.
From 2022-2023, interest rates were raised aggressively to ~5.5% in order to fight the inflation that resulted from unprecedented Covid stimulus spending in 2020/2021.
The Fed then began to lower rates in 2024, ostensibly due to a weak labor market and cooling inflation. However, a ballooning federal debt (now closing in on $38.5 trillion) is likely a key reason why the central bank was forced to lower rates.
Nearly $9 trillion dollars of the US debt (much of which was borrowed during ZIRP) had to be rolled-over throughout 2025 at much higher rates, causing interest payments to surge and surpass the cost of national defense.
If interest rates remain elevated, not only is the economy at risk, but the cost of servicing the debt will become unmanageable.
How is the Fed dealing with this problem?
Lowering Rates
According to blockchain-based Polymarket, and following two interest rates cuts earlier this year (in September and October), the Fed is expected to cut rates once again by 0.25% tomorrow (Dec 10th).
Also, whoever replaces Powell as the new Fed chairman in mid-2026 will be expected to drop rates even further, as per a recent interview with US president Trump.
Reducing rates incentivizes borrowing, is supposed to stimulate economic activity, and lowers the government's interest payments.
Purchasing Treasuries
In addition to reducing interest rates, the Fed officially ended their Quantitative Tightening (QT) program on Dec 1st, which is a net positive for liquidity. In fact, a return to "Not QE" (treasury purchases) in 2026 is increasingly likely.
Reminiscent of late 2019 (right before Covid stimulus), the Fed has already conducted several significant repo operations in late 2025 to address strains in the short-term funding markets. This activity signals that liquidity issues have already started to materialize.
Financial analysts are predicting that the Fed will be forced yet again to inject liquidity into the banking system as early as Q1 of 2026, reinflating a balance sheet which they have been trying to reduce since QT began in June of 2022.
Only ~50% of the Covid-era money printing was reversed by the Fed's most recent QT program, once again highlighting that our debt-based monetary system is expanding exponentially and unsustainably.
Affect On Crypto
Treasury purchases and lower interest rates will result in more liquidity flooding into the banking system, a lot of which could potentially funnel into "risk-on" assets like Bitcoin and cryptocurrencies.
According to the Fed, the money supply has been increasing since the end of 2023. Although it doesn't correlate exactly, this increased liquidity has pushed up the price of Bitcoin, gold, and especially silver as of late, which hit a new all-time high of $60 per ounce today.
Until next time...
The lowering of interest rates and increase of treasury purchases is expected to accelerate the expansion of the money supply, and send asset prices (including cryptocurrencies) higher (not financial advice!).
Unfortunately, these policies will also produce more consumer inflation, and further widen the gap between rich and poor. You can reduce your exposure to inflation by owning quality assets, especially unconfiscatable ones.
If you learned something new from this article, be sure to check out my other posts on crypto and finance here on the Hive blockchain. You can also follow me on InLeo for more frequent updates.