The U.S. central bank seems almost certain to cut interest rates on Wednesday but it’s unclear whether bankers will end quantitative tightening (QT) and what its impact might be on crypto markets, analysts told Decrypt.
QT is when the Federal Reserve reduces the amount of money in the financial system by letting its bond holdings shrink—pulling cash out of circulation to cool the economy and fight inflation. It’s the opposite of quantitative easing (QE), when the Fed pumps money in by buying bonds.
Crypto traders mock quantitative easing by referring to the Fed’s money printer going brr as it prints more fiat currency. But if the Federal Reserve ends quantitative tightening, the implied higher tolerance for inflation would create a “tailwind” for Bitcoin and other crypto assets, Dr. Andre Dragosh, head of research in Europe for Bitwise, told Decrypt.
At the time of writing, Bitcoin was trading flat, right around $114,850 after having lost 0.1% in the past 24 hours, according to crypto price aggregator CoinGecko. And Ethereum has fallen slightly, 2.2%, in the past day. But ETH has also remained above $4,100, 2.7% higher than a week ago. Analysts believe that investors have already priced in a rate cut, which historically has helped crypto and other risk-on assets.
Dragosh highlighted that Bank of America and JP Morgan have already signaled that they expect the Fed to end QT and that Powell has made statements that indicate that’s likely to happen in the coming months.
“The end of QT would certainly send a clear signal for higher inflation tolerations—closer to 3% over the medium term,” he told Decrypt. “In fact, the mere announcements of easier monetary policy such as QE1, QE2, Operation Twist, etc. has already led to significant increases in inflation expectations in the past as highlighted in our latest Crypto Market Compass report.”
At the time of writing, users on Myriad, a prediction market owned by Decrypt parent company Dastan, think there’s a 90% chance that the FOMC will approve a 25-basis point cut on Wednesday.
Myriad users tend to be more conservative than what can be gleaned by the CME FedWatch Tool, which uses futures trading data to infer trader sentiment. Futures activity there shows traders predict a 97.8% chance the Fed approves a cut Wednesday and an 89% chance there’s another cut in December.
“Rate cuts add fuel to the already accelerating liquidity growth in the U.S. and globally which is why we are most likely looking at an extension of the current bull market well into 2026 and no imminent cycle top,” Dragosh said. “A relaxation of the U.S.-China trade spat would even strengthen this view and the sell-off in gold actually tells us that a risk-on scenario which supports Bitcoin and cryptoassets could, in fact, be on the horizon.”
Trader positioning now for what’s very likely to be a Fed rate cut tomorrow should be different than it was in September, said Jonathan Rose, CEO of BlockTrust IRA.
“In September, the market might have overestimated how big or when the policy easing would happen, which could have led to some naive or crowded positioning. So, before we fully commit to a certain direction, we should be careful,” Rose cautioned. “Instead, we should try to go against the crowd, expecting a reversal if the market initially reacts positively to the rumor but then sells the underlying fact.”
For starters, the U.S.-China trade relations remain on uncertain ground until U.S. President Donald Trump meets with Chinese President Xi Jinping on Thursday, he said, adding that Bitcoin traders should watch the $111,000 to $115,000 range.
“This area could either be a starting point or a potential point of failure, depending on how things turn out. Since there’s a lot of leverage involved, risk management is super important,” he said. “If the Federal Reserve’s message changes from what we thought, we could quickly close our positions.”
