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 (ETF), but rather a possible change in the liquidity policy of the Federal Reserve (Fed).
After 18 months of restrictive measures, the Federal Reserve is preparing to pause its quantitative tightening (QT) and could even initiate stealth quantitative easing (QE) once again.
What’s next for the crypto market?
In a recent mail On social media platform X, VirtualBacon made a compelling argument linking liquidity pivots to altcoin cycles. In 2019, the Federal Reserve halted QT, resulting in an altcoin rally. On the contrary, in 2022, when the Federal Reserve initiated QT, altcoins peaked.
Now, with the Federal Reserve expected to end QT in 2025, VirtualBacon anticipates a similar surge for altcoins. The correlation is clear: when the Federal Reserve increases liquidity, altcoins tend to rise. The pressing question now is when exactly QT will end.
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While the fed Although he does not explicitly label a change as QE, the expert points out that the crucial moment will come when they eliminate the text regarding “reducing the size of the balance sheet.”
The last notable example of this was during the 2019 repo crisis, when banks faced an immediate cash shortage, prompting the Federal Reserve to inject $75 billion into the financial system. Although Powell claimed that “it was not about QE”, it indeed was, and after that intervention, Bitcoin tripled in value in a few months.
CME FedWatch tool shows high probability of rate cuts
Major financial institutions are already making predictions: Goldman Sachs says the October meeting is the base case for the QT to end, Bank of America expects the QT to end at the end of the month, and Evercore indicates that the Federal Reserve is likely to signal the end of the QT this week.
The same indicators that caused market disruption in 2019 are signaling difficulties now. Regardless of official statements, it seems that QT is reaching its conclusion, with Stealthy QE on the horizon.
This change would facilitate the return of liquidity to the markets, which has historically driven cryptocurrency prices. Liquidity acts as fuel for market movements and the Federal Reserve is prepared to refill this tank.
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The CME FedWatch tool currently indicates a 96.7% probability of a rate cut this month and an 87.9% probability of another cut in December. Powell recently hinted that the QT would conclude “in the coming months,” signaling an imminent turn.
M2 Money Supply Signals Bitcoin’s Next Rise
Despite the current market uncertainty, VirtualBacon states that bitcoin It has not reached its peak. Of the 30 historical indicators that typically signal a bull market peak, none have activated yet, and the data indicates there is still room for growth.
The world money supply m2 continues to rise, historically leading Bitcoin prices by 10-12 weeks. The expert added that since the beginning of the month this monetary supply has been increasing.
This development indicates that Bitcoin’s next upward move is already in process, although it lags behind the liquidity curve. Additionally, VirtualBacon predicts that once the Federal Reserve pivots, a new altcoin season may begin.
Featured image of DALL-E, chart from TradingView.com
