The Federal Reserve officially ended its quantitative tightening, or QT, program on Dec. 1, freezing its balance sheet at $6.57 trillion. This move signals a significant shift in U.S. monetary policy with important implications for Bitcoin and the broader crypto markets.
The decision concludes a three-year period during which the Fed withdrew $2.39 trillion from the financial system, marking the largest liquidity withdrawal in history. While Treasury runoff has now been halted, the Fed will continue reducing its holdings of mortgage-backed securities by $35 billion each month. This action comes as bank reserves are near $2.89 trillion, a level that officials had expressed concern could pose a risk to market stability if QT were to persist.
Market Reaction and Historical Context
Bitcoin (BTC) was trading around $92,000 on Dec. 2, representing a decrease of over 16% in the preceding month. Approximately $1 billion in leveraged crypto trades were liquidated during a selloff on Monday, highlighting how thin liquidity can amplify volatility in risk assets.
Investors Seek Historical Parallels
In 2019, when the Fed previously paused its QT program, markets experienced a rally of 17% within weeks. However, Bitcoin initially saw a decline of about 35% before experiencing significant gains in early 2020.
The current economic cycle presents a different landscape. Interest rates have already been lowered to the 3.75%–4.00% range, the substantial Overnight Reverse Repo facility has been largely depleted, and institutional participation has seen a notable increase. Spot Bitcoin ETFs now hold over $50 billion, attracting consistent inflows from major firms like BlackRock and Fidelity.
If historical patterns are indicative, the Federal Reserve's policy adjustment could create a more favorable environment for a market rebound. As Fundstrat analyst Tom Lee noted to CNBC, the halt of QT is expected to act as a "tailwind" for both Bitcoin and equities as they head into 2026.