Crypto Market on High Alert: Fed Decision This Week Holds Major Implications

This week, as the Federal Reserve prepares for its meeting, crypto markets are not primarily focused on potential rate cuts. Instead, traders are keenly observing whether Jerome Powell will indicate a shift towards quantitative easing (QE). The main concern for macro-sensitive investors is whether the Fed will initiate a “reserve management” strategy that increases dollar liquidity, even if it doesn’t label it as QE.

Key Takeaways

The upcoming Federal Reserve meeting may shift focus from rate cuts to potential quantitative easing (QE).
Analysts predict a possible announcement of monthly Treasury bill purchases, hinting at a liquidity increase.
The Fed's stance on reserves will be crucial for cryptocurrency markets, influencing future liquidity conditions.
The total crypto market capitalization is currently at $3.1 trillion, reflecting continued growth.

Crypto news Fed FOMC decision

While futures markets suggest a rate cut appears likely, with an 87.2% probability of a 0.25 percentage point reduction according to the CME FedWatch Tool, the real question revolves around the Fed’s intentions regarding reserves and Treasury bill (T-bill) purchases.

Mark Cabana, a former New York Fed repo specialist and current strategist at Bank of America, has emerged as a key voice in this discussion. He believes Powell may announce a program involving approximately 45 billion dollars in monthly T-bill purchases, emphasizing that the rate cut is secondary to the balance sheet adjustments.

Cabana’s perspective is based on the Fed’s “ample reserves” policy. He argues that after extended periods of quantitative tightening (QT), bank reserves are nearing the lower edge of a comfortable level. The proposed purchases would be framed as a technical adjustment aimed at maintaining orderly funding markets and stable repo rates, but they would actually signify a shift from draining liquidity to replenishing it—a scenario many in the crypto community are referring to as “stealth QE.”

Implications for the Crypto Market

James E. Thorne, Chief Market Strategist at Wellington Altus, highlighted the significance of this decision in a recent post on X. He posed the pivotal question: “Will Powell surprise on Wednesday?” and reiterated a critical concern seen in financial circles: “Is Powell ready to acknowledge that the Fed has drained the system excessively and now needs to refill it?”

Thorne connects this situation with input from the New York Fed regarding funding markets and reserve adequacy. He interprets that according to Powell’s framework, QT has effectively concluded, reserves are hovering near the lower acceptable range, and any new T-bill procurements will be presented as technical modifications rather than an admission of error, despite clearly aiming to restore reserves and alleviate the funding stress caused by previous over-tightening policies. This reasoning strikes at the heart of crypto traders' interests: they care more about the flow of net liquidity rather than the official narrative.

Macro analysts who track digital-assets are closely analyzing the upcoming phase. Milk Road Macro on X predicts a return of QE in 2026, possibly starting in the first quarter but in a much-reduced form than previous crisis-era measures. They forecast a potential balance-sheet growth of about 20 billion dollars per month, which is minor compared to the 800 billion dollars per month during 2020, and highlight that the Fed will be purchasing T-bills, not treasury coupons. They clarify the difference: “Buying treasury coupons = real QE. Buying treasury bills = slow QE.” Their conclusion suggests that the impact of this QE on risk asset markets will be minimal.

This distinction highlights the current uncertainty within crypto markets. A slow-paced, T-bill-only strategy focused on ensuring short-term funding stability differs significantly from the expansive coupon purchasing that previously lowered long-term yields and intensified the search for yield across risk assets. Nevertheless, even a modest, technically framed approach would represent a notable return to balance-sheet expansion.

For Bitcoin and the broader crypto market, the immediate effects may stem less from the anticipated rate move this Wednesday and more from Powell’s statements regarding reserves, T-bill purchases, and future “reserve management” strategies. If the Fed indicates that QE is essentially beginning—signifying the start of liquidity replenishment—the liquidity environment that crypto operates within in 2026 could begin to take shape this week.

As of now, the total crypto market capitalization stands at $3.1 trillion.

Total crypto market cap remains above the 2021 peak, 1-week chart | Source: TOTAL on TradingView.com