Flattening yield curve and expectations of rate cuts: How will U.S. Treasury yields and Bitcoin's next move evolve?

Eastern Time April 21 — The acting Federal Reserve Chair Kevin Woorh attended the Senate Banking Committee nomination confirmation hearing, where he first systematically articulated his monetary policy stance. This two-hour hearing drew global financial market attention due to Woorh’s proposal of a “balance sheet reduction + rate cuts” dual approach. Woorh explicitly stated during the hearing that the Fed’s balance sheet should be significantly reduced, while advocating lowering interest rates to support the real economy.

Key milestones from nomination to hearing

The evolution of Woorh’s policy stance itself warrants examination. Early in his career, he was regarded as a “hawk” in monetary policy, critical of the Fed’s large-scale balance sheet operations. However, after being nominated by Trump, his policy views shifted markedly — from a traditional hawkish stance to supporting or even advocating rate cuts, while maintaining that balance sheet reduction creates room for rate cuts.

Key timeline highlights:

• January 2026: Woorh is nominated by President Trump as the next Fed Chair candidate;
• April 20, 2026 (before the hearing): Market expectations for Fed rate cuts in 2026 total only 0.4 cuts, indicating cautious sentiment overall;
• April 21, 2026: Senate Banking Committee holds the nomination hearing, where Woorh first systematically presents his policy views;
• April 21, 2026 (intraday): US stocks decline, 10-year US Treasury yields rise to 4.3%;
• April 22, 2026 (post-meeting): According to CME “FedWatch” data, the probability of the Fed holding rates steady in April is 100%, with only a 1.7% chance of a total 25 basis point cut in June;
• April 24, 2026: Latest CME data shows a 99% chance of no rate change in April, with the probability of a June rate cut rising slightly to 2.6%;
• April 28-29, 2026: FOMC policy meeting takes place;
• May 15, 2026: Powell’s term officially ends.

Contradictions within the dual policy approach

Woorh’s “balance sheet reduction + rate cuts” plan appears logically consistent on the surface but conceals deep contradictions — quantitative tightening (QT) withdraws liquidity from the financial system and pushes long-term interest rates higher, while rate cuts aim to lower short-term rates to stimulate the real economy. These opposing directions create complex hedging effects on asset prices.

Fed’s balance sheet and market liquidity

Currently, the Fed’s balance sheet is about $6.7 trillion. Woorh advocates for a significant reduction. His core logic is: a large balance sheet disproportionately benefits Wall Street and keeps short-term rates high, while shrinking the balance sheet could help lower rates and improve inflation.

The table below compares market impacts during several Fed balance sheet reduction cycles:

Historical data shows that during QT periods, crypto assets generally face liquidity contraction pressures. After the 2019 QT ended, BTC rebounded from December 2019 to February 2020 to about $10,000, confirming QT’s suppressive effect on risk assets. In 2022, aggressive rate hikes combined with QT led to about a 65% decline in BTC.

US Treasury yields and crypto assets

The reaction of US Treasury yields on the hearing day is noteworthy: the 10-year yield rose to 4.3%. Earlier, in late March 2026, the 10-year yield approached an intra-year high of 4.5%, while Bitcoin fell below $68,000.

Rising yields increase the opportunity cost of holding non-yield assets like Bitcoin, while tightening financial conditions suppress risk appetite. However, markets need to distinguish two scenarios — if the yield rise is driven by economic growth expectations, stocks and crypto tend to strengthen; but if driven by central bank asset sales causing real yields to rise (similar to Woorh’s QT scenario), it’s bearish for risk assets.

Rate cuts and risk appetite

Rate cuts also have a dual effect on crypto assets. Theoretically, lower rates reduce capital costs and boost risk asset valuations. After the December 2025 rate cut to 3.50%-3.75%, the decline in short-term rates did indeed channel some capital into high-risk digital assets. But in 2019, after rate cuts, BTC initially fell then rose, reflecting the risk that “rate cut benefits” may be exhausted and lead to a correction.

Market sentiment analysis: hawk-dove debate and divergence

Post-hearing, market views are sharply divided, forming a “hawkish appearance, dovish core” split in assessments.

Mainstream institutional views

Some analysts interpret Woorh’s statements as “superficially hawkish, with dovish room within.” This suggests that future Fed rate cuts are certain, but the pace and magnitude are uncertain. DBS Hong Kong’s economic research team notes that Woorh’s “holding a stance to gain nomination” and vague policy tool statements could slow policy implementation.

Some market participants believe Woorh’s firm stance on Fed independence and rejection of presidential interference alleviates concerns over politicization of monetary policy, supporting the dollar and US Treasuries.

Others note that Woorh’s overall hawkish tone could correct overly optimistic market bets on rapid rate cuts, exerting short-term pressure on US stocks. Guotai Huarong takes a “neutral” view, suggesting the real challenge for Woorh is convincing FOMC members of the inflation downtrend to facilitate rate cuts.

Market pricing in reality

As of April 24, 2026, CME “FedWatch” shows a 99% probability of no rate change in April, with only a 2.6% chance of a June rate cut. The market is almost unprepared for short-term rate cuts.

This indicates that although Woorh expressed a rate cut inclination during the hearing, derivatives markets’ pricing remains very restrained — possibly due to concerns that Woorh’s QT stance tightens liquidity and suppresses rate cut expectations, or because market inflation outlooks remain cautious.

Industry impact analysis: transmission mechanisms from macro policies to crypto assets

Woorh’s policy framework impacts crypto assets through three channels: liquidity, valuation, and market sentiment.

First, liquidity channel: direct bearish pressure from QT

QT reduces the Fed’s bond holdings, withdrawing liquidity from the financial system. This directly tightens USD liquidity, which is the core driver of crypto capital inflows. By shrinking the balance sheet, the Fed drains USD reserves from the global financial system, decreasing exchange funds and making crypto markets more sensitive to liquidity contraction than other assets.

In Q1 2026, some analyses point to “triple liquidity contraction” pressures on Bitcoin — ongoing QT, changes in general account balances, and debt ceiling effects. If Woorh accelerates QT, M2 money supply growth could slow further or turn negative, exerting more direct liquidity pressure on risk assets like Bitcoin.

Second, valuation channel: rate cuts’ boost vs. QT’s suppression

Lowering rates reduces risk-free interest rates, theoretically boosting risk assets like Bitcoin. However, under Woorh’s framework, rate cuts are not “net easing” — the liquidity tightening from QT may offset the benefits of rate cuts.

Post-2019 rate cuts and QT ending, BTC initially fell then rose, indicating QT’s impact on crypto assets often precedes the positive effects of rate cuts.

Third, market sentiment and structural channel: US debt yields linkage

Recent data shows a strengthened negative correlation between Bitcoin and US Treasury yields. Large-scale US debt sales by the Fed to intervene in the currency market or to raise real yields can directly impact crypto markets. Conversely, if debt sales are aimed at defending the dollar’s value, the resulting USD liquidity could support crypto markets at certain stages, creating a “dip then rise” pattern.

In the context of Woorh’s QT and sustained high US debt supply, long-term yields may face persistent upward pressure, becoming a key macro variable weighing on crypto valuation.

Conclusion

Woorh’s “balance sheet reduction + rate cuts” dual approach fundamentally represents a significant restructuring of the Fed’s traditional policy framework. QT tightens liquidity and impacts long-term interest rates, while rate cuts aim to support the real economy by lowering short-term rates — both can coexist in theory but tend to offset each other’s effects on asset prices in practice.