Category: general

The Federal Reserve’s decision to end its quantitative tightening program has placed the crypto markets at a critical juncture. Investors are now weighing whether this pivot will reignite Bitcoin’s bull run or lead to a repeat of its 2019 post-policy slump.

Federal Reserve Chairman Jerome Powell’s recent comments hinted at an end to the central bank’s balance sheet reduction, also known as quantitative tightening. Experts have previously told Decrypt that this process is generally bullish for risk assets like Bitcoin.

However, the Fed’s pivot could be a double-edged sword. Historically, such transitions initially bring volatility but eventually pave the way for capital flows into higher-yielding investments as easing begins.

“Despite a 25bps rate cut, traders are dialing back expectations for further easing, now pricing a lower chance of another cut in December,” said Riya Sehgal, research analyst at Delta Exchange. “ETF flows confirm the cautious tone, with Bitcoin funds seeing $197.5 million in outflows and Ethereum funds $66.2 million.”

The current backdrop, featuring a U.S.-China trade war and political pressure on the Fed, bears a striking resemblance to the conditions in 2019. Ryan Lee, chief analyst at Bitget, noted, “The parallels are clear: tariff pressure, political interference, and a dovish Fed, but this time Bitcoin sits at the center of global liquidity flows.”

Lee added, “Unlike 2019’s pre-institutional market, today’s crypto landscape could amplify upside rather than trigger stress.”

Sean Dawson, head of research at on-chain options trading platform Derive, highlighted key differences in the macroeconomic setup compared to 2019. “Things are quite different from 2019’s liquidity cycle,” Dawson said, pointing out that the current interest rate of roughly 4% is much higher than the 2.5% seen in 2019.

“There’s more built-up energy in the markets that can flow into risk-on assets like Bitcoin if rates were to fall,” he explained. Dawson also mentioned an impending leadership change at the Federal Reserve involving a Trump-selected replacement, which could expedite rate cuts.

Such a “fiscally loose Fed” would be “extremely beneficial for Bitcoin holders,” he added.

While Lee acknowledged the potential for short-term volatility due to U.S.-China trade tensions and political pressure, possibly causing a 10% to 15% correction for Bitcoin, he remains optimistic. “The broader easing cycle sets a supportive tone for risk assets,” he said.

Dawson echoed this caution, noting, “Options traders are still clamoring for short-term insurance, a sign that the fear from October’s crash remains fresh in the market’s memory.”

Despite these short-term concerns, both experts agree that the long-term outlook is decidedly bullish, supported by new regulatory and macroeconomic realities.

“We’re truly in uncharted waters; the current administration is all in on crypto adoption, coupled with the expectation of lowered rates, which bodes extremely well for Bitcoin,” Dawson concluded.

Easing from the Fed is critical for Bitcoin to break out of its $105,000 to $115,000 trading range. Dawson forecasts a target of $200,000 for the third quarter of 2026, contingent on favorable macroeconomic and geopolitical developments.
https://decrypt.co/346924/bitcoin-braces-fed-balance-sheet-shift-liquidity-cycle-turns