Bitcoin fell sharply on Tuesday as investors grew cautious ahead of two major events that could affect the crypto market. The world’s largest cryptocurrency dropped about 3% during the day. The first major concern is the Federal Reserve’s interest-rate decision due Wednesday. Investors are increasingly expecting the Fed to raise interest rates, which can put pressure on riskier assets such as cryptocurrencies .
Why the crypto bill matters
Markets are currently pricing in a 92% chance of a Fed rate hike, according to the CME FedWatch Tool. The cryptocurrency had been showing signs of recovering after a major sell-off that began late last year and continued into 2026. Because it aims to create a clear federal regulatory framework for digital assets, the CLARITY Act is important for the crypto industry. Because the crypto industry has been closely watching the legislation, the uncertainty around the bill is important for Bitcoin.
The bill could establish rules around how digital assets and crypto markets are regulated in the US. A clear set of federal rules could make it easier for crypto companies, developers and traditional financial firms to operate in the US. Bitcoin’s latest drop comes after a period of strong gains.
This has added pressure on Bitcoin as traders prepare for the central bank’s decision, according to Yahoo Finance. Coinbase Chief Policy Officer Faryar Shirzad said the legislation could provide the regulatory certainty needed for the next stage of financial innovation. He told Yahoo Finance that the future of finance is being built on blockchain and that the law could clarify which rules apply to companies and developers.
Higher interest rates can make investors less willing to hold risky assets. When borrowing costs rise and safer investments such as bonds become more attractive, investors can reduce their exposure to assets such as Bitcoin and other cryptocurrencies. Bitcoin’s fall also comes ahead of a key Senate vote on the CLARITY Act. The lack of enough votes has raised concerns that the legislation could be delayed. Crypto traders are already pricing in a low chance that the bill will become law this year. Treasury Department intervention in the bond market and assistance to Japan helped support prices of gold and crypto assets. But Bitcoin has since given back some of those gains. Rising oil prices and growing expectations of a Fed rate hike have created fresh pressure on the cryptocurrency market. Despite the latest decline, some analysts believe Bitcoin could be close to the end of its recent crypto winter. Even if the central bank delivers the rate hike investors already expect, Bitcoin could still recover if the Fed’s outlook is less hawkish than markets fear. This means Bitcoin’s Tuesday decline is being driven by a mix of monetary-policy fears and uncertainty over US crypto regulation. For now, Bitcoin remains under pressure after giving back part of last month’s rally. The immediate focus is on whether the Fed raises rates as expected and whether the CLARITY Act can overcome its political hurdles in the Senate.
However, hopes that the bill would get the 60 votes needed to overcome a filibuster have weakened. Investors fear the bill could be shelved until after the US midterm elections and potentially pushed further into the future, even as far as 2029. Polymarket bettors currently give the CLARITY Act only a 12% chance of becoming law in 2026. Bitcoin gained about 25% last month as crypto and gold prices benefited from developments in the bond market.
Because both could influence sentiment toward digital assets, traders are watching both the Fed’s rate decision and the CLARITY Act vote.
Noelle Acheson, author of the Crypto Is Macro Now newsletter, said recent Bitcoin price action suggests that the crypto winter may be close to ending, according to Yahoo Finance. Sean Farrell, head of digital assets at Fundstrat, said Bitcoin could benefit if the Fed’s projections or Chair Warsh’s comments are less hawkish than expected. He said this could create a favorable setup for Bitcoin, Ethereum and the wider crypto market, according to Yahoo Finance.
Republicans rejected a Democratic counteroffer just hours before the planned vote, making the bill’s path forward more uncertain. The Senate is scheduled to hold a procedural vote on the cryptocurrency legislation on Tuesday afternoon. The key question now is what the Fed says and does on Wednesday.
