The Federal Reserve lowered interest rates by 25 basis points today, indicating that its balance-sheet reduction may soon conclude, which could be a significant development for Bitcoin.
With the overnight reverse repo facility nearly depleted at about $14 billion, any additional quantitative tightening will directly impact bank reserves.
This change means that even minor adjustments to QT can have substantial effects on liquidity, real yields, and the dollar—key factors that have influenced Bitcoin’s performance this year.
Leading up to the meeting, real yields were already decreasing from summer highs. The yield on 10-year TIPS hovered around 1.7%, while five-year forward inflation expectations were about 2.2%, indicating softer real rates and stable inflation.
The dollar index was around 99, significantly lower than its early-year highs. Together, these trends created a conducive environment for a liquidity-friendly response as the Fed leaned dovish.
Chair Powell’s remarks reiterated that the Fed views its policy as “sufficiently restrictive” and signaled readiness to modify QT to ensure “ample reserves.” This guidance holds greater importance for risk assets than the rate cut itself.
Research suggests that forward guidance and balance-sheet expectations have a more significant impact on long-term real yields than the actual policy rate, affecting risk appetite and ETF demand. A pause, or even discussions about one, reduces the opportunity cost of holding Bitcoin, weakens the dollar, and promotes inflows into spot BTC ETFs.
ETF data supports this correlation. US spot Bitcoin funds recorded approximately $446 million in net inflows in the week leading up to the decision, reversing earlier mid-month declines.
Historical FOMC cuts have observed similar outcomes: declining real yields and a weakened dollar typically lead to increased ETF creations in the subsequent 48 hours.
As real yields decrease and the dollar weakened today, traders will be observing if this trend continues into the week’s settlement.
The Fed’s balance sheet now stands at about $6.6 trillion, down from a peak of $9 trillion, with reserves around $3 trillion. Powell’s October 14 address outlined this scenario and framed QT’s “endgame” as an active discussion, suggesting that liquidity tightening is nearing completion.
This is the dynamic that drives Bitcoin’s trading: it’s not the nominal funds rate, but the increase or decrease of system reserves.
As QT slows down, additional dollars re-enter bank and market liquidity, indirectly stimulating risk-taking and demand for crypto.
Ultimately, with RRP balances diminishing and QT approaching its end, liquidity guidance—not the 25 bp reduction—will influence real yields and the dollar, which are critical to Bitcoin’s short-term trajectory.
If Powell maintains a dovish stance and enhances the QT pause narrative, anticipate slipping real yields, a softened dollar, and increased ETF inflows—creating a favorable situation for BTC.
However, if he shifts back toward inflation concerns, those gains are likely to diminish.
