The U.S. Federal Reserve wrapped up its quantitative tightening (QT) program on Monday, December 1, punctuating it with $13.5 billion pumped into the U.S. banking system through overnight repos.
The figure was the second-largest liquidity injection since the COVID-19 era and surpasses even the Dot Com Bubble peaks, according to Federal Reserve Economic Data (FRED).
As a result, investors and analysts have been left wondering whether risk assets such as equities and cryptocurrencies are going to be affected, especially as liquidity begins to loosen.
Analysts bullish on crypto and stocks
Fundstrat’s Tom Lee remains optimistic on crypto and stocks, noting in a CNBC interview that the central bank is going to provide the biggest tailwind in the following weeks.
“I think the biggest tailwind that’s gonna emerge in the next couple of weeks is around the central bank. The Fed is set to cut in December, but also today’s the day that quantitative tightening ends, and as you know, the Fed has been shrinking its balance sheet since April 2022. It’s been a pretty big tailwind for market liquidity,” said Lee.
With liquidity no longer being drained from the system, capital flows could begin accelerating into risk assets.
“The last time we had an end to quantitative tightening was September 2012, and if you look back at that period, the markets really responded well,” he further noted.
New Bitcoin all-time high in January?
Lee appears especially convinced when it comes to Bitcoin (BTC), arguing that higher liquidity historically correlates with stronger performance in risk-on assets.
Accordingly, he believes that a new all-time high for “digital gold” is possible by late January, even though the effects of the October slump are still noticeable and the Bank of Japan seems “hawkish.” When it comes to the S&P 500, he argued that 7,200-7,300 is likely in December.
All attention is, of course, on the December Federal Open Market Committee (FOMC) meeting, which the market hopes will clarify the Fed’s upcoming rate-cut path.
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