Bitcoin’s Recent Rally: Understanding the Impact of Interest Rates and the Fed Chair Speculation
Bitcoin’s latest price surge has been attributed to several key factors, including the increased likelihood of a Federal Reserve interest rate cut in December, a weakening dollar, and speculation about who will succeed Jerome Powell as the Fed Chair in 2026. The probability of a 25 basis point rate cut has risen to the mid-to-high 80% range, according to futures markets, leading to eased financial conditions and a ninth consecutive daily decline in the dollar.
The shift in market expectations has helped Bitcoin break out of its previous $84,000-$87,000 range and move towards $93,000, following a volatile November that saw significant declines in leveraged crypto products and proxy stocks. The spot price has been hovering around $92,300 in midweek trading, with the 10-year Treasury yield stabilizing around 4.1%, a level that has historically been conducive to risk positioning in the crypto space.
Speculation about the Fed’s “Shadow Chair” Creates a New Catalyst
The political narrative surrounding the Fed Chair nomination has added a new layer of complexity to the market. According to Reuters, President Trump plans to announce his nominee for the Fed Chair position in early 2026, before Powell’s term ends on May 15, 2026. The leading candidates include former White House economist and Coinbase adviser Kevin Hassett, Fed Governor Christopher Waller, Vice Chair of Supervision Michelle Bowman, former Governor Kevin Warsh, and BlackRock’s Rick Rieder.
Market forecasters are already pricing in the potential implications of each candidate’s nomination, with Hassett seen as a more dovish option who could lead to a softer dollar and easier monetary policy. In contrast, Warsh is viewed as a more hawkish candidate who could prioritize balance sheet reduction and tighter monetary policy.
Federal Reserve Candidates: What Their Views Could Mean for Interest Rates, the Dollar, and Bitcoin
The candidates’ differing views on monetary policy and the economy will have significant implications for interest rates, the dollar, and Bitcoin. Hassett has argued that inflation has “come down significantly” and has urged faster cuts in recent interviews, a stance that investors view as an easing bias. Waller, on the other hand, has endorsed a cut in December, calling decisions data-dependent.
Bowman has favored gradualism with regard to financial stability, while Warsh has been a long-time critic of balance sheet expansion and would likely prioritize inflation control. Rieder has emphasized the need for market adjustments and has pushed for cuts in view of the tense housing situation.
The Short-Term Macro Channel Remains Dominant
The recent BTC rally is primarily driven by an interest rate trade, rather than a personality trade. The higher chances of a cut in December, combined with a weaker dollar and more stable real yields, have created a favorable environment for risk assets like Bitcoin. However, a hawkish surprise or upward inflation shock could strengthen the dollar, boost yields, and put pressure on risk assets, including cryptocurrencies.
What Happens Next: The Fed Chair’s Path to 2026 and Why It Matters for BTC
To determine the path to 2026, the exchange rate-USD-BTC peg is a crucial factor. With the 10-year interest rate nearing 4.1% and the dollar weakening, cryptocurrencies are likely to continue benefiting from liquidity stimulus. The presidential race will also impact expectations of next year’s policy mix, adding to the complexity of the market.
The following scenarios outline the potential implications of different Fed Chair candidates on the dollar, interest rates, and Bitcoin:
| Scenario | Result and Bias of the Presidency | Political Path until 2026 | USD | 10Y SEC | BTC Framing (Tactical, Not Advice) |
|---|---|---|---|---|---|
| Restrained Continuity | Hassett or Rieder, Relaxation Bias | 25-50 Basis Points More Easing than Current Pricing | Softer | Lower to Stable | Risk-on Offer if ETF Flows Pick Up Again |
| Data-Dependent Sliding | Waller or Bowman, Incremental | Cutbacks Largely Haunt the Future | Area Bound | ~3.9–4.3% | Chop is Tied to Macro Vibrations and Currents |
| Hawkish Pivot | War or Renewed Acceleration of Inflation | Delayed Cuts, Balance Sheet Priority | Firmer | Higher Yields | Risk Minimization Across the Crypto Space |
Key indicators to watch include the CME FedWatch probabilities for the December decision, daily ETF net flows, and signals from the White House regarding the shortlist of candidates. For more information, visit https://cryptoslate.com/bitcoin-shadow-chair-liquidity-risk/
