- The Fed ends QT, triggering a liquidity shift that boosts Bitcoin.
- Analysts compare the current cycle with 2019 and prior QT endings.
- December policy divergence may cause short-term Bitcoin volatility.
This week, the Federal Reserve also terminated its quantitative tightening program, and risk assets crashed. Bitcoin rose on the news, increasing by over 7% in 24 hours as investors analyzed the effects of the fresh liquidity growth. Bitcoin, as the main one, is mentioned first because it is the key to the market’s transformation.
The Fed injected more than $13 billion into the banking system through overnight repo operations, the largest such liquidity injection since the beginning of 2020. According to market analysts, these activities have a historical track record of enhancing performance in equities and digital assets. Some industry players indicated that the transition is similar to previous cycles, in which significant crypto rallies followed liquidity relief.
Analysts compare current cycle with past liquidity expansions
According to Binance co-founder Changpeng Zhao and other market participants, new liquidity tends to attract more participants. They referred to historical cycles in which capital flowed freely into the digital assets after the monetary conditions were relaxed. BitMine chairman Tom Lee told CNBC that Bitcoin had risen absurdly close to 20% following the prior conclusion of QT and that this tendency might occur in the present setup.
Certain observers likened the scenario to late 2019, when stress in the repo market was an indicator of more liquidity alterations. Research group Bull Theory opined that the current repo spike pattern resembled early indications during the same time. As its analysis says, the ongoing repo action will push the Federal Reserve towards the middle ground easing in early 2026. This would not be a full-scale recreation of the 2020 stimulus, but it would still be a valuable contribution to financial markets overall.
Warnings from other market watchers accompanied the positive reaction. Sykodelic, an analyst, observed that improvement in liquidity does not necessarily result in price acceleration. When tracking the previous policy changes in my life, I have seen that markets usually need time to adapt to changes and only then define a direction.
Potential volatility ahead as december policy moves approach
According to Benjamin Cowen, founder of Into The CryptoVerse, the next few weeks could bring about short-term volatility. He cited a possible policy difference between the Federal Reserve and the Bank of Japan. His analysis revealed that in July 2024, U.S. rate cuts, along with a BOJ rate increase, contributed to Bitcoin’s sharp volatility and a major sell-off.
Cowen opined that the same conditions would arise around December tenth, when the Fed will be inclined to reduce rates as the BOJ deliberates on tightening. If these events coincide, Bitcoin could face new pressure. In the 2024 episode, the market bottomed about a week after the policy divergence, which formed the conditions of a rebound. Analysts indicated that the existing structure would generate a similar trend in case volatility resumes.
Bitcoin was still trading higher when it was written and even scaled above $84,000. Traders closely monitored liquidity flows as markets acclimatized to the most recent Federal Reserve policy pivot.
