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John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

After the influential New York Federal Reserve president made a speech last week suggesting he would support another interest rate cut, it appeared a majority on the Federal Open Market Committee (FOMC) had formed in favour of further easing. After a few weeks of turbulence, stock markets celebrated the expected return of easy money and re-entered party mode.

Yet one asset class has largely sat out the rally so far – crypto. Although most market indexes are back near the all-time highs they set last month, bitcoin, which has been among the stronger performers in the crypto universe, is still down 20 per cent. That’s telling because crypto has for a long time led the way for the market, so its recent travails may suggest the worst hasn’t passed for markets.

Bitcoin on thin ice after sinking in flight from risk

Bitcoin is a child of the cheap-money era that began after the 2008 financial crisis, when central banks massively increased the money supply to stanch bleeding in asset classes. That era ended when inflation spiked four years ago, and ever since central banks have been trying to extricate themselves from it. Once they began raising interest rates and mopping up the supply of money, crypto’s days appeared numbered, and the price of bitcoin collapsed.

The crypto industry’s $28-billion in ‘dirty money’

However last year crypto found a saviour when Donald Trump, initially a crypto skeptic, pledged to make the U.S. a “bitcoin superpower” if he returned to office. The industry then invested heavily in his campaign, and the bet paid off handsomely. Once he re-entered the White House, Mr. Trump immediately began favouring the industry with deregulation, pardons of convicted crypto felons and the promotion of some of his own family’s schemes. At this point institutional investors and “crypto treasuries,” companies which sell shares to buy bitcoin, rushed in, and bitcoin reached an all-time high of over US$125,000.

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But now, suddenly, it’s taken a plunge. Bitcoin is used to volatility, but a few factors seem to be coming together to make it possible something structural may be changing. First, although investors are celebrating what they take to be the return of a “Fed put” – the assurance by the central bank that it will pump money into the market each time asset prices fall – it’s not clear this will be the central bank’s motivation if it cuts rates next month. Some FOMC members, particularly those named by Mr. Trump, are pushing for a return to easy money, but others remain anxious about inflation. Thus, next month’s decision may be a “hawkish cut” – a small reduction in interest rates accompanied by a statement that no more are planned.

Second, it’s become evident that the United States is now a two-speed economy. The surging stock market is making the rich richer, but ordinary people are feeling increasingly stressed by rising prices and declining wage growth. If we look past the headline figures on inflation to focus on the things that ordinary people consume, in particular groceries, there’s evidence that the negative feelings people report about the economy to pollsters have a sound basis: for millions of Americans, things really are getting worse.

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This helps to explain President Donald Trump’s sinking approval ratings and the poor performance of Republicans in recent elections. But it also may also point to trouble ahead for markets. In particular, Mr. Trump’s cozying up to tech oligarchs and his push against any form of AI regulation is polling very badly, not least among Republican voters. Markets have largely ignored the political risks to booming markets, but the recent victory of Zohran Mamdani in New York’s mayoral election shows that popular sentiment is turning against Wall Street, oligarchs, and unrestrained AI. Moreover, if the cost of living remains the primary issue in next year’s election campaigns, the hawks at the Fed may feel emboldened to turn the screws on inflation.

Finally, and related to this, Mr. Trump’s deepening unpopularity, and the approaching midterm elections, appear to be weakening his authority. His abrupt volte-face on the Epstein files, and increasing criticism coming from within Republican ranks, suggest he may be losing the vice-like grip he has had over Republicans. Given that crypto’s renaissance owes much to his patronage, it may be that investors are starting to doubt he will be able to lend the support he did over the last year. And if Mr. Trump can’t save crypto, he probably couldn’t block any AI clampdown that may be coming.

For now, bitcoin is back off the canvas and is rising again, albeit well behind the major market indexes. A key moment may come at the next FOMC meeting in two weeks. If bitcoin continues rallying through a hawkish cut, it may point to a good 2026 for markets. But if it falls again, especially if it does so before the Fed meeting, it may be a warning of a rocky new year.