Bitcoin at the intersection of monetary policy and market cycles
March 2026
James Butterfill, head of research at CoinShares, assesses why Bitcoin has underperformed traditional safe havens following the Federal Reserve’s policy shift, considering how cyclical flows, muted institutional demand, and regulatory uncertainty are weighing on near-term performance
Image: CoinShares
Bitcoin’s recent price performance has been disappointing for many investors — particularly when compared with traditional hedging instruments. While precious metals have posted strong gains since the US Federal Reserve’s monetary policy pivot in the summer of 2025, Bitcoin has so far lagged behind. This divergence warrants explanation, but it speaks less against Bitcoin’s long-term role and more to a demanding market environment in the first half of 2026.
Precious metals benefit, Bitcoin lags
Since the Federal Reserve’s shift in policy — accompanied by rate cuts and an overall more accommodative communication stance — gold, silver, and platinum have appreciated markedly.
Beyond monetary policy, rising geopolitical tensions, higher energy prices, and sustained central bank purchases have provided additional support.
Notably, even investors from within the crypto ecosystem are increasingly participating in this trend. On derivatives trading platforms, digital asset traders are now actively trading precious metals. Despite this growing appetite for real stores of value, Bitcoin has so far been left behind.
Cyclical factors weigh in the near term
A key headwind has been capital flows. Since autumn 2025, larger Bitcoin holders have reduced their positions by US$29 billion.
This behaviour is consistent with historical patterns observed in the mid-phase of a halving cycle, during which distribution phases often persist for several months.
Although smaller market participants continue to accumulate, this demand has not yet been sufficient to fully absorb the excess supply.
At the same time, institutional inflows remain muted. Exchange-traded crypto products have recorded net outflows since the start of the year, pointing to an overall defensive positioning. We expect these cyclical moves to subside by mid-year this year, as they have done in the past.
Monetary policy: Less support than hoped
Additional pressure comes from the monetary policy outlook. Kevin Warsh has been nominated as the new chair of the US Federal Reserve. While he is generally regarded as technology and crypto-friendly, his stance on monetary policy is clearly more restrictive.
Expectations of an aggressively dovish policy path or swift monetary stimulus have therefore faded for the time being.
In the short term, this limits the appeal of risk assets — including Bitcoin. However, it does little to alter the underlying structural backdrop: high levels of public debt, fiscal dominance and a fundamentally expansionary monetary environment over the longer term remain firmly in place.
Decoupling from global liquidity
Another striking development is the growing decoupling between Bitcoin and global money supply growth. Historically, Bitcoin prices have tracked the expansion of global liquidity with a high degree of correlation. At present, a pronounced gap has emerged.
Either the market is underestimating this relationship, or a sharp contraction in global liquidity is imminent. Given current fiscal and monetary conditions, the latter appears unlikely. Instead, the divergence points to a relative undervaluation of Bitcoin versus prevailing monetary fundamentals.
Geopolitics favours traditional safe havens
During periods of acute geopolitical uncertainty, Bitcoin’s hybrid nature becomes apparent.
As an asset combining both risk and hedging characteristics, Bitcoin does not always benefit immediately from crisis scenarios.
Rising energy prices and geopolitical escalation tend to favour established safe havens such as gold in the short term.
Historically, however, Bitcoin has often followed with a lag — particularly once the monetary and fiscal consequences of geopolitical conflicts become more apparent.
Regulation: The CLARITY Act as a medium-term structural factor
>On the regulatory front, near-term catalysts are also lacking, though a structurally important development is emerging over the medium term. At the centre of this is the Digital Asset Market Clarity (CLARITY) Act, the most serious attempt to date to establish a coherent regulatory framework for the market structure of digital assets in the United States.
The bill aims to resolve several long-standing uncertainties: which regulator oversees which segments of the crypto market, what requirements apply to trading venues, and what disclosure obligations are triggered when tokens are issued or traded. At the core of the original proposal is a clearer delineation of responsibilities between the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), particularly with regard to so-called digital commodities.
While the CLARITY Act passed the House of Representatives in mid-2025, progress in the Senate has stalled. The scope of the bill has expanded significantly and now encompasses contentious issues such as stablecoin yields, the tokenisation of traditional assets, and the regulatory treatment of decentralised finance. These competing interests have recently led to delays in the legislative process.
In the short term, this weighs on market sentiment. Over the medium to long term, however, political momentum to establish a market structure framework remains intact. For blockchain platforms beyond Bitcoin — such as Ethereum or Solana — regulatory clarity would be particularly significant. Clearer token classification, well-defined registration pathways for trading venues and binding disclosure standards could materially ease access for institutional investors, especially in areas such as tokenisation, smart contract applications and infrastructure. Against this backdrop, regulatory clarity — even if more restrictive than some market participants might hope — is likely to provide orientation rather than deterrence over the longer term.
Challenging months, constructive outlook
Taken together, the evidence points to a volatile, range-bound market environment in the months ahead. The first half of 2026 is likely to remain challenging for Bitcoin, with major price breakouts appearing unlikely in the near term.
The medium-term outlook, however, remains constructive. Monetary conditions continue to be supportive, structural debt levels remain high, cyclical selling pressure is likely to subside over the course of the year, and historical liquidity relationships suggest significant catch-up potential. From this perspective, Bitcoin currently appears less a short-term momentum trade and more a strategic positioning for investors with a longer investment horizon.
Precious metals benefit, Bitcoin lags
Since the Federal Reserve’s shift in policy — accompanied by rate cuts and an overall more accommodative communication stance — gold, silver, and platinum have appreciated markedly.
Beyond monetary policy, rising geopolitical tensions, higher energy prices, and sustained central bank purchases have provided additional support.
Notably, even investors from within the crypto ecosystem are increasingly participating in this trend. On derivatives trading platforms, digital asset traders are now actively trading precious metals. Despite this growing appetite for real stores of value, Bitcoin has so far been left behind.
Cyclical factors weigh in the near term
A key headwind has been capital flows. Since autumn 2025, larger Bitcoin holders have reduced their positions by US$29 billion.
This behaviour is consistent with historical patterns observed in the mid-phase of a halving cycle, during which distribution phases often persist for several months.
Although smaller market participants continue to accumulate, this demand has not yet been sufficient to fully absorb the excess supply.
At the same time, institutional inflows remain muted. Exchange-traded crypto products have recorded net outflows since the start of the year, pointing to an overall defensive positioning. We expect these cyclical moves to subside by mid-year this year, as they have done in the past.
Monetary policy: Less support than hoped
Additional pressure comes from the monetary policy outlook. Kevin Warsh has been nominated as the new chair of the US Federal Reserve. While he is generally regarded as technology and crypto-friendly, his stance on monetary policy is clearly more restrictive.
Expectations of an aggressively dovish policy path or swift monetary stimulus have therefore faded for the time being.
In the short term, this limits the appeal of risk assets — including Bitcoin. However, it does little to alter the underlying structural backdrop: high levels of public debt, fiscal dominance and a fundamentally expansionary monetary environment over the longer term remain firmly in place.
Decoupling from global liquidity
Another striking development is the growing decoupling between Bitcoin and global money supply growth. Historically, Bitcoin prices have tracked the expansion of global liquidity with a high degree of correlation. At present, a pronounced gap has emerged.
Either the market is underestimating this relationship, or a sharp contraction in global liquidity is imminent. Given current fiscal and monetary conditions, the latter appears unlikely. Instead, the divergence points to a relative undervaluation of Bitcoin versus prevailing monetary fundamentals.
Geopolitics favours traditional safe havens
During periods of acute geopolitical uncertainty, Bitcoin’s hybrid nature becomes apparent.
As an asset combining both risk and hedging characteristics, Bitcoin does not always benefit immediately from crisis scenarios.
Rising energy prices and geopolitical escalation tend to favour established safe havens such as gold in the short term.
Historically, however, Bitcoin has often followed with a lag — particularly once the monetary and fiscal consequences of geopolitical conflicts become more apparent.
Regulation: The CLARITY Act as a medium-term structural factor
>On the regulatory front, near-term catalysts are also lacking, though a structurally important development is emerging over the medium term. At the centre of this is the Digital Asset Market Clarity (CLARITY) Act, the most serious attempt to date to establish a coherent regulatory framework for the market structure of digital assets in the United States.
The bill aims to resolve several long-standing uncertainties: which regulator oversees which segments of the crypto market, what requirements apply to trading venues, and what disclosure obligations are triggered when tokens are issued or traded. At the core of the original proposal is a clearer delineation of responsibilities between the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), particularly with regard to so-called digital commodities.
While the CLARITY Act passed the House of Representatives in mid-2025, progress in the Senate has stalled. The scope of the bill has expanded significantly and now encompasses contentious issues such as stablecoin yields, the tokenisation of traditional assets, and the regulatory treatment of decentralised finance. These competing interests have recently led to delays in the legislative process.
In the short term, this weighs on market sentiment. Over the medium to long term, however, political momentum to establish a market structure framework remains intact. For blockchain platforms beyond Bitcoin — such as Ethereum or Solana — regulatory clarity would be particularly significant. Clearer token classification, well-defined registration pathways for trading venues and binding disclosure standards could materially ease access for institutional investors, especially in areas such as tokenisation, smart contract applications and infrastructure. Against this backdrop, regulatory clarity — even if more restrictive than some market participants might hope — is likely to provide orientation rather than deterrence over the longer term.
Challenging months, constructive outlook
Taken together, the evidence points to a volatile, range-bound market environment in the months ahead. The first half of 2026 is likely to remain challenging for Bitcoin, with major price breakouts appearing unlikely in the near term.
The medium-term outlook, however, remains constructive. Monetary conditions continue to be supportive, structural debt levels remain high, cyclical selling pressure is likely to subside over the course of the year, and historical liquidity relationships suggest significant catch-up potential. From this perspective, Bitcoin currently appears less a short-term momentum trade and more a strategic positioning for investors with a longer investment horizon.
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