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.
Markets are currently pricing in a 92% chance of a Fed rate hike, according to the CME FedWatch Tool. This has added pressure on Bitcoin as traders prepare for the central bank's decision, according to Yahoo Finance.
Fed rate hike fears hit Bitcoin
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.
CLARITY Act vote adds pressure
Deep Dive
What impact does the Fed rate hike have on Bitcoin prices?
Why is the CLARITY Act significant for the crypto market?
How could Bitcoin recover after the Fed's interest rate decision?
Bitcoin's fall also comes ahead of a key Senate vote on the CLARITY Act. The Senate is scheduled to hold a procedural vote on the cryptocurrency legislation on Tuesday afternoon.
The CLARITY Act is important for the crypto industry because it aims to create a clear federal regulatory framework for digital assets. The bill could establish rules around how digital assets and crypto markets are regulated in the US.
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{{/usCountry}}Also read: Why are US mortgage rates rising again as 10-year Treasury yields hit a 19-year high?
{{/usCountry}}However, hopes that the bill would get the 60 votes needed to overcome a filibuster have weakened. Republicans rejected a Democratic counteroffer just hours before the planned vote, making the bill's path forward more uncertain.
CLARITY Act may face delay
The lack of enough votes has raised concerns that the legislation could be delayed. 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.
Crypto traders are already pricing in a low chance that the bill will become law this year. Polymarket bettors currently give the CLARITY Act only a 12% chance of becoming law in 2026.
Why the crypto bill matters
The uncertainty around the bill is important for Bitcoin because the crypto industry has been closely watching the legislation. A clear set of federal rules could make it easier for crypto companies, developers and traditional financial firms to operate in the US.
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.
Bitcoin gives back recent gains
Bitcoin's latest drop comes after a period of strong gains. The cryptocurrency had been showing signs of recovering after a major sell-off that began late last year and continued into 2026.
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Bitcoin gained about 25% last month as crypto and gold prices benefited from developments in the bond market. 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. 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.
Can Bitcoin recover after the Fed decision?
The key question now is what the Fed says and does on Wednesday. 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.
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.
This means Bitcoin's Tuesday decline is being driven by a mix of monetary-policy fears and uncertainty over US crypto regulation. Traders are watching both the Fed's rate decision and the CLARITY Act vote because both could influence sentiment toward digital assets.
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.