The US Fed Ends Quantitative Tightening: Why Is Bitcoin Still Below $100,000?

The Federal Reserve has the officially concluded its multi-year quantitative tightening (QT) program, which has left its balance sheet at approximately $6.57 trillion. This decision comes after more than $2.3 trillion was drained from the financial system since 2022.

Key Takeaways:

The Fed has ended its quantitative tightening program, freezing its balance sheet at $6.57 trillion.
Historical data suggests that liquidity inflows are crucial for significant price movements in cryptocurrencies like Bitcoin.
Current market trends indicate some bullish activity, but the crypto environment remains uncertain.
A delayed reaction from Bitcoin may occur as liquidity recovery could take longer than anticipated, possibly till early 2026.

Bitcoin

As the Fed's announcement resonates through the crypto market, many investors are hopeful. Traditionally, liquidity inflows have been key drivers in every significant cryptocurrency market cycle. With the end of this prolonged liquidity drain, there’s optimism that the Bitcoin price may finally push beyond $100,000 in the near future.

A Shift in Policy Amid a Searching Market

After three years of reducing its balance sheet, the Fed has paused at around $6.57 trillion. The runoff of Treasury securities stopped on December 1, although mortgage-backed securities will continue to decline gradually.

By ending QT, the Fed is moving away from its previous policy of aggressive balance sheet reduction, which has tightened financial conditions throughout 2023 and early 2024. This action comes in response to falling bank reserves that threatened the stability of short-term funding, prompting the Fed to halt further liquidity drains.

Crypto investors are optimistic that the end of QT will ease some of the selling pressure that has plagued the crypto industry in recent months. Historical patterns suggest that such scenarios often lead to market recovery. For example, during the last QT halt in 2019, digital assets began to recover sharply after bottoming out, with Bitcoin’s price rallying from about $3,800 to $29,000 within a year and a half.

Interestingly, the cryptocurrency market is already reflecting some bullish trends in the short term. In the past 24 hours, the overall market has surged by 7.2%, with Bitcoin at the forefront. However, the current macroeconomic environment differs from previous years, raising questions about whether Bitcoin and other cryptocurrencies can sustain an extended bullish trend in the months to come.

Why the Delayed Reaction in Bitcoin?

While the end of QT is a significant development, it does not immediately inject liquidity back into the system. Benjamin Cowen, the founder of IntoTheCryptoverse, provides insight into what to anticipate.

He points out that in 2019, although the Fed announced the end of QT on August 1, the balance sheet continued to decline until mid-August because scheduled Treasury maturities hadn’t settled. It wasn’t until early 2020 that Bitcoin experienced substantial gains. Cowen suggests that a similar pattern could emerge now.

Thus, the Federal Reserve's balance sheet could continue to decrease for a few more weeks. This might mean that the first significant increase in liquidity won’t be visible until early 2026. Such a delay implies that traders anticipating a quick boost or a swift return of Bitcoin to above $100,000 may be premature. While the tightening phase has concluded, the recovery in liquidity has yet to begin.

Bitcoin BTC trading at $92,875 on the 1D chart | Source: BTCUSDT on Tradingview.com