Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
The Federal Reserve is widely anticipated to cut interest rates by 25 basis points this Wednesday, with traders placing a 97.8% probability on the move. While the rate cut itself is largely priced into markets, the potential decision to end quantitative tightening (QT) remains a key point of uncertainty for cryptocurrency markets.
Analysts suggest that an end to QT would signal a higher tolerance for inflation, creating a significant “tailwind” for Bitcoin and other digital assets. Currently, Bitcoin is trading relatively flat around $114,850, while Ethereum has seen a slight dip of 2.2% in the last 24 hours, though it remains up 2.7% over the past week.
Understanding Monetary Policy
Quantitative tightening (QT) involves the Federal Reserve reducing the amount of money circulating in the financial system by allowing its bond holdings to shrink. This process aims to cool the economy and combat inflation. Conversely, quantitative easing (QE) injects money into the system through bond purchases.
Crypto traders often satirize QE as the “Fed’s money printer going brrr,” highlighting the perceived influx of fiat currency. An end to QT would reverse this money-draining process, potentially loosening financial conditions.
Impact on Crypto Markets
Dr. Andre Dragosh, head of research in Europe for Bitwise, indicated that ceasing QT would clearly signal a higher inflation tolerance, likely closer to 3% over the medium term. He noted that historical announcements of easier monetary policies, such as QE1 and QE2, have consistently led to increased inflation expectations.
This shift in monetary policy is generally viewed as supportive for risk-on assets, including cryptocurrencies. Major financial institutions like Bank of America and JP Morgan have already signaled their expectation for the Fed to conclude QT in the near future, aligning with statements from Fed Chair Jerome Powell.
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Market Sentiment and Outlook
Prediction markets reflect a strong conviction in an imminent rate cut. Users on Myriad, a prediction market owned by Decrypt parent company Dastan, estimate a 90% chance of a 25-basis point cut by the Federal Open Market Committee (FOMC) on Wednesday. The CME FedWatch Tool, which analyzes futures trading data, indicates an even higher 97.8% probability for Wednesday and an 89% chance of another cut in December.
Dragosh believes these rate cuts will “add fuel to the already accelerating liquidity growth in the U.S. and globally,” potentially extending the current bull market well into 2026. He added that a relaxation of U.S.-China trade tensions could further strengthen this optimistic outlook for Bitcoin and other crypto assets.
Trader Caution Advised
Despite the bullish long-term projections, some analysts urge caution in the short term. Jonathan Rose, CEO of BlockTrust IRA, highlighted that investor positioning ahead of the Fed’s decision should be approached with care, especially given past instances where markets might have over-anticipated policy easing.
Rose advised traders to monitor the Bitcoin price range between $111,000 and $115,000, noting it could serve as either a launchpad or a failure point. He also emphasized the critical importance of risk management due to high leverage in the market and the potential for shifts in the Federal Reserve’s messaging. External factors, such as President Donald Trump’s meeting with Chinese President Xi Jinping on Thursday, could also influence market dynamics.
