Market expert VirtualBacon recently suggested that the most important event for the crypto industry this year is not the Bitcoin (BTC) halving or the approval of exchange traded funds (ETFs), but rather a potential shift in the Federal Reserve’s (Fed) liquidity policy.
After 18 months of tightening measures, the Fed is reportedly preparing to pause its quantitative tightening (QT) and could even initiate stealth quantitative easing (QE) again.
What is the future for the crypto market
In a recent one after on social media platform In 2019, the Fed halted the QT, resulting in a rally for altcoins. Conversely, altcoins peaked in 2022 when the Fed initiated QT.
With the Fed expected to end the QT interval in 2025, VirtualBacon expects a similar increase for altcoins. The correlation is clear: when the Fed increases liquidity, altcoins tend to rise. The pressing question now is when exactly QT will end.
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While the Fed While perhaps not explicitly labeling a shift as QE, the expert notes that the crucial moment will come when they remove the language about “reducing the size of the balance sheet.”
The last notable example of this was during the 2019 repo crisis, when banks faced immediate liquidity shortages, prompting the Fed to inject $75 billion into the financial system. Although Powell claimed it was “not QE,” it was in fact the case, and after that intervention, Bitcoin tripled in value within months.
CME FedWatch Tool Shows High Probability of Rate Cuts
Major financial institutions are already making predictions, with Goldman Sachs stating that the October meeting is the base case for the end of QT, Bank of America expecting QT to end by the end of the month, and Evercore indicating that the Fed will likely signal an end to QT this week.
The same indicators that caused market disruptions in 2019 are now signaling distress. Regardless of the official statements, it appears that QT is nearing its end stealth QE on the horizon.
This shift would facilitate a return of liquidity to the markets, which has historically driven crypto prices. Liquidity acts as fuel for market movements, and the Fed is ready to refill that tank.
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The CME FedWatch tool currently shows a 96.7% probability of a rate cut this month and an 87.9% probability of another cut in December. Powell recently hinted that QT would end “in the coming months,” signaling an imminent reversal.
M2 Money Supply Signals Impending Bitcoin Peak
Despite the current market uncertainty, VirtualBacon states that Bitcoin has not yet reached its peak. Of the 30 historical indicators that typically point to a bull market peak, none have yet been activated. Data shows there is still room for growth.
The global one M2 money supply continues to rise, which historically increases Bitcoin prices by 10 to 12 weeks. The expert added that this money supply has increased since the beginning of the month.
This development indicates that Bitcoin’s next upward move is already in the pipeline, albeit one that will lag behind the liquidity curve. Moreover, VirtualBacon predicts that once the Fed reverses, a new altcoin season could begin.
Featured image of DALL-E, chart from TradingView.com