Bitcoin has not grown at the rapid rate expected so far in the cycle, and some have blamed this on the fact that the Federal Reserve has been practicing quantitative tightening. This refers to a period when the central bank is reducing its money supply in a bid to reel in excess liquidity. As a result, buying power seems to have fallen as there isn’t enough liquidity flowing into risk assets such as Bitcoin. However, this could all be changing very soon as the Fed begins to change its stance.
Quantitative Easing Could Bring About More Liquidity
After a long stretch of quantitative tightening, the Fed’s recent comments suggest that there is a move toward quantitative easing. This is expected to happen sometime in December, and it could trigger a massive shift as the market looks to close another year.
Quantitative easing, as the name suggests, is the opposite of quantitative tightening, and the former sees the Fed pump liquidity into the market. This rush in liquidity could lead to investors taking more risks, and this, in turn, would be good for assets like Bitcoin as investors move into the crypto market for the long term.
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The announcement for a move to quantitative easing is expected to come on December 1, and naturally, there have been debates on its impact on the Bitcoin price. Crypto analyst and investor Ted Pillows shared a chart showing that the last time the Fed ended quantitative tightening in 2019, the Bitcoin price had suffered a notable crash.
The post suggests that this could be the case as the Fed makes its move in less than two weeks. However, this point has been countered by another crypto analyst, who pointed out the differences between what happened in 2019 and what is going on in 2025.
Why This Time Could Be Different For Bitcoin
In a response to Pillows, pseudonymous crypto analyst Sykodelic outlined that one of the very first reasons the Bitcoin price won’t crash with the announcement of quantitative easing is the fact that the Fed overdid it in 2019. According to the post, the Fed overdid quantitative tightening, which led to the 2019 repo crisis.
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However, this time around, while the reserves are low, they haven’t reached danger territory. Also, with a $2 trillion fiscal deficit, the analyst explains that the US will have no choice but to stimulate the economy with liquidity, or else it risks going bankrupt.
Since the Bitcoin price already had a major drop, reaching record-breaking MACD levels, the analyst believes the chances of a drop are low. “If you are betting on a year long bear market you are basically betting that the USA will let itself go broke,” the analyst said. “There is simply no room left for the FED to turn.”
Featured image from Dall.E, chart from TradingView.com
