Market expert VirtualBacon recently suggested that the most significant 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 Federal Reserve (Fed) liquidity policy.
After 18 months of tightening measures, the Fed is reportedly preparing to pause its quantitative tightening (QT) and may even initiate stealth quantitative easing (QE) once again.
What’s Next For The Crypto Market
In a recent post on social media platform X, VirtualBacon laid out a compelling argument linking liquidity pivots to altcoin cycles. In 2019, the Fed halted QT, which resulted in a rally for altcoins. Conversely, in 2022, when the Fed began QT, altcoins peaked.
Now, as the Fed is expected to end QT in 2025, VirtualBacon anticipates a similar surge for altcoins. The correlation is clear: when the Fed increases liquidity, altcoins tend to rise. The pressing question now is when exactly QT will come to a close.
While the Fed may not explicitly label a shift as QE, the expert notes that the pivotal moment will arrive when they remove the language regarding “reducing the size of the balance sheet.”
The last notable instance of this was during the 2019 repo crisis, when banks faced immediate cash shortages, prompting the Fed to inject $75 billion into the financial system. Although Powell claimed it was “not QE,” it effectively was, and following 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 QT to end, Bank of America expecting QT to cease by month-end, and Evercore indicating that the Fed is likely to signal an end to QT this week.
The same indicators that caused market disruptions back in 2019 are signaling distress now. Regardless of official statements, it appears QT is nearing its conclusion, with stealth QE on the horizon.
This shift would facilitate a return of liquidity to the markets, which historically has driven crypto prices. Liquidity acts as the fuel for market movements, and the Fed is poised to refill this tank.
The CME FedWatch tool currently indicates a 96.7% probability of a rate cut this month and an 87.9% chance of another cut in December. Powell recently hinted that QT would conclude “in the coming months,” signaling an imminent pivot.
M2 Money Supply Signals Upcoming Bitcoin Surge
Despite the current market uncertainty, VirtualBacon asserts that Bitcoin has not reached its peak. Out of 30 historical indicators that typically signal a bull market peak, none have activated yet, with data indicating there is still room for growth.
The global M2 money supply continues to rise, which historically leads Bitcoin prices by 10 to 12 weeks. The expert added that since the beginning of the month, this money supply has been increasing.
This development indicates that Bitcoin’s next upward movement is already in the pipeline, albeit lagging behind the liquidity curve. Additionally, VirtualBacon forecasts that once the Fed pivots, a new altcoin season may commence.
Featured image from DALL-E, chart from TradingView.com
