When discussing market prospects for the coming year, many investors are focusing their attention on the Federal Open Market Committee (FOMC) meetings of the U.S. Federal Reserve (Fed) in 2026. However, upon closer inspection, the core of the issue actually revolves around one point: the Fed has quietly begun to pump money back into the market. Although it has not publicly declared 'easing', the actions are very clear — purchasing about 40 billion USD in short-term Treasury bills each month. Essentially, this is a form of 'extending the life' of the financial system.
Bank Liquidity is Dwindling
The reason the Fed is forced to act is not too complex: America is running low on money, especially in the banking system.
The IORB rate (interest rate for banks depositing money at the Fed) is seen as the 'absolute safe' return. Meanwhile, the SOFR is the borrowing rate between banks with government bonds as collateral, reflecting the actual state of the capital market more closely.
Under normal conditions, when liquidity is abundant, market interest rates will be lower than the 'Fed deposit' rate. However, currently, the SOFR is continuously rising, indicating that banks are willing to pay a high price just to have cash. This is a typical signal of a quietly evolving liquidity crisis.
If this situation goes beyond control, not only the stock market but also the bond market will face significant risks. The Fed clearly cannot stand by and watch.
Job Market Deteriorating, Pressure on Fed Increasing
Private sector employment data is also not very promising. The ADP report shows that in 2025, there were months of negative job growth, with tens of thousands of workers being laid off. The reason is quite understandable: prolonged high interest rates increase capital costs, eroding corporate profit margins. Businesses are forced to tighten hiring and even lay off staff to survive.
When people lose jobs or fear unemployment, consumption weakens, and the risk of a 'hard landing' for the economy becomes increasingly evident. In this context, inflation becomes an issue that the Fed can temporarily tolerate, while economic recession cannot. Therefore, the familiar paradox arises: bad news for the real economy is actually good news for asset markets.
Fed Forced to Buy Assets
Some Fed officials have openly admitted that the level of liquidity in the banking system is not as abundant as they once thought. The market is 'speaking' through prices and interest rates. To prevent bank reserves from continuing to decline, the Fed must return to the path of asset purchases. Whether short-term or long-term bonds, as long as the Fed buys in, it is essentially a form of balance sheet expansion, meaning it is pumping money.
Market Structure of Securities and Risk Cash Flow
When comparing the Russell 2000 index (representing small businesses) with the S&P 500 (representing large corporations), we can clearly see the risk appetite of cash flow. When this ratio drops significantly, it indicates that investors are avoiding risk, funneling money into large-cap stocks.
Currently, this ratio is at a historically low level, meaning that small-cap stocks are being undervalued compared to the large-cap group. This is like a spring compressed to its limits. In the long run, financial markets never move in one direction forever; when the imbalance is large enough, cash flow will seek out forgotten areas.
And in the risk hierarchy, crypto is at the highest level, after small-cap stocks. When money begins to leave the safe group, the next destination is likely the cryptocurrency market.
Important Note: Pumping Money Does Not Mean Immediate Increase
One point to emphasize: whenever the Fed officially eases or expands the balance sheet, the market does not usually rise immediately; it may even decline first. The reason is that expectations have already been reflected in prices early on, and when the policy is implemented, investors realize that the actual situation is more serious than they thought.
Additionally, money does not flow into the market immediately. In the early stages, institutions often have to deal with debt, replenish margins, or cope with capital withdrawal pressures, leading to the sale of highly liquid assets. Typically, it takes several weeks to a month for cash flow to start spreading.
This process also has a clear order: securities first, small-cap stocks next, and then crypto. In crypto, Bitcoin usually benefits first, followed by Ethereum, and then it spreads to other coins.
Overall Perspective for the Period 2025–2026
In many respects, there is a high probability that asset prices will continue to rise in the medium term, but the crypto market is unlikely to immediately enter a 'super bull run'. Instead, a more reasonable scenario is strong rebounds from the bottom, especially when most altcoins have been heavily sold off.
Another notable factor is the political aspect. Before leaving office, the Fed Chair is unlikely to publicly admit that they are 'unwinding', but the actual actions speak otherwise. The leadership change at the Fed in 2026 could become a catalyst for a climactic high point at the end of the cycle.
Conclusion
The crypto market in 2026 may not immediately explode into a super cycle, but the opportunities for strong recoveries are very clear. With a strategy focused on major coins like BTC, ETH, BNB, combined with strict risk management and patiently waiting for real cash flow to spread, investors can fully capitalize on this important transitional phase of the market.
