Main points:
The Fed’s end to QT and reinvestment in T-bills subtly enhances liquidity.
Market analysts are split on its impact on BTC price, with bullish forecasts suggesting a peak at $180,000.
Bitcoin (BTC) fell by 3.67% to $107,925 following the Federal Reserve’s announcement of a 25-basis-point rate reduction and confirmation that it will cease its balance-sheet runoff come December, marking the effective conclusion of quantitative tightening (QT).
Possible effects of QT’s conclusion on Bitcoin price
From December 1, the Fed will halt the reduction of its bond holdings and start reinvesting maturing debt into short-term Treasury bills (T-bills).
In simpler terms, when the Fed’s older bonds are repaid, instead of reducing its balance sheet by destroying that money, it will use the funds to purchase new short-term government debt.
According to data from analyst Brett, Bitcoin dropped 35% after the Fed ceased QT in 2019 and initiated rate cuts, even as U.S. stock markets grew during that period, which usually moves in sync with BTC.
The Bitcoin market didn’t rebound until the Fed implemented full-fledged quantitative easing (QE) in early 2020, amid concerns related to COVID-19.
“I would argue we’re at the peak of the four-year cycle now… which might not be any better,” Brett stated, adding:
“If we see QE, I don’t expect it until late next year.”
In the meantime, some indications of a potential bear market are emerging. Analyst Jesse Olson pointed to a “pending bearish MACD crossover” on Bitcoin’s three-week chart, a technical signal that previously preceded a 69% market correction in 2021-2022.
Thus, if history is any guide, Bitcoin may face downside risks before any new liquidity-driven rally takes off.
Fed’s covert QE could assist BTC in reaching $180,000
Economist Lyn Alden stated that the Fed’s choice to reinvest maturing debt into T-bills effectively generates new money, even if the Fed refrains from labeling it QE.
When the Fed injects funds into the financial system by purchasing T-bills, it ultimately provides more reserves to the sellers of those Treasurys (banks, funds). Increased reserves lead to greater liquidity ready for deployment in the markets.
According to analyst Bedouin, Bitcoin’s value might climb into the $130,000-$180,000 range by 2026, as the rise in liquidity outweighs concerns regarding BTC’s four-year cycle.
Related: Bitcoin price to increase six-fold in 2026? M2 supply surge triggers COVID-19 comparisons
This aligns with the year-end BTC price predictions shared by leading Wall Street firms earlier this year, including JPMorgan and Standard Chartered.
This article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers are encouraged to conduct their own research before making decisions.
