Will Bitcoin Repeat Its Price Crash as the Fed Ends QT in December?

Bitcoin has not experienced the expected rapid growth during this cycle, and many attribute this stagnation to the Federal Reserve's practice of quantitative tightening (QT). This process involves the central bank reducing the money supply to control excess liquidity. As a consequence, the buying power has diminished, resulting in less liquidity for risk assets like Bitcoin. However, significant changes may be on the horizon as the Fed appears ready to shift its approach.

Key Takeaways

Bitcoin's growth has been sluggish due to the Fed's quantitative tightening.
The Fed may shift to quantitative easing in December, which could increase liquidity in the market.
Historical data indicates that ending QT in 2019 led to a significant Bitcoin price crash.
Analysts argue that the current economic conditions are different from those in 2019, suggesting a lower risk of a price drop for Bitcoin this time around.

Bitcoin Price Crashes Under $90K

Potential for Increased Liquidity Through Quantitative Easing

The Fed, after an extended period of QT, recently hinted at a shift towards quantitative easing (QE). This change is anticipated in December and could spark a considerable transformation as the market approaches the end of the year. Unlike QT, QE involves the Fed injecting liquidity into the market. This influx of money may encourage investors to take bolder risks, potentially benefiting assets such as Bitcoin as they engage more with the crypto market for the long haul.

The Fed is expected to announce its move to QE on December 1, igniting discussions about its implications for Bitcoin's price. Crypto analyst Ted Pillows presented a chart indicating that when the Fed ended QT in 2019, Bitcoin’s price experienced a significant crash.

However, some analysts dispute the likelihood of a similar outcome this time around, citing differing circumstances between 2019 and 2025.

What Makes This Situation Different for Bitcoin?

In response to Pillows' analysis, pseudonymous crypto analyst Sykodelic emphasized key factors that may prevent a Bitcoin price crash following the QE announcement. One crucial point is that the Fed may have overextended QT in 2019, which contributed to the repo crisis of that year.

Presently, although the reserves are low, they have not reached critical levels. Furthermore, Sykodelic pointed out that with a substantial fiscal deficit of $2 trillion, the U.S. government must boost the economy with liquidity to avoid potential bankruptcy.

Given that Bitcoin has already witnessed a significant downturn and is showing record-level MACD metrics, the chances of another decline appear minimal. Sykodelic remarked, “If you are betting on a year-long bear market, you are basically betting that the USA will let itself go broke. There is simply no room left for the Fed to turn.”

Bitcoin price chart from Tradingview.com
BTC continues to rise | Source: BTCUSD on Tradingview.com