Federal Reserve Continues Balance Sheet Shrinkage Post-QT

Key Takeaways

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  Federal Reserve's balance sheet continues contraction post-QT end date, impacting crypto liquidity.
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  Cryptocurrencies like Bitcoin and Ethereum face ongoing economic pressures.
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  Potential macroeconomic headwinds may delay market recovery until 2026.

Extended Quantitative Tightening and its Crypto Implications

Benjamin Cowen, CEO of Into The Cryptoverse, highlighted that despite the Federal Reserve's quantitative tightening (QT) ending December 1, the reduction of its balance sheet may extend until early 2026. This ongoing monetary policy constrains liquidity, impacting cryptocurrencies like Bitcoin and Ethereum. The persistent macroeconomic pressures could potentially affect market recovery and growth.

The Federal Reserve's quantitative tightening policy was expected to conclude on August 1, 2019, according to Benjamin Cowen. However, the contraction of its balance sheet continued into mid-August due to pending Treasury bond settlements.

The prolonged QT period suggests ongoing monetary tightening, affecting liquidity in the financial system and reducing available capital for investments in crypto assets like Bitcoin and Ethereum.

"Although the Fed’s QT policy was announced to end on August 1, 2019, in practice, the shrinking of its balance sheet continued through mid-August due to Treasury bond settlements." — Benjamin Cowen, Founder and CEO, Into The Cryptoverse

Experts note that the significant impact on liquidity may depress crypto prices. Despite no direct statements from major figures, the crypto community remains cautious, acknowledging the macroeconomic pressures noted by Cowen.

Bitcoin and Ethereum Prices Under Pressure Amidst Economic Trends

Periods of Federal Reserve's quantitative tightening have historically correlated with reduced liquidity and downward pressure on cryptocurrency and equity prices, impacting market recovery timelines.

Bitcoin (BTC), currently trading at $86,090.70 with a market cap of $1.72 trillion, sees a 5.35% 24-hour price drop, according to CoinMarketCap. The 30-day price has decreased by 21.87%, while the 90-day figure shows a 21.97% decline.

Research emphasizes the potential for extended financial and liquidity constraints due to ongoing Federal Reserve policies. This may further impact crypto market stability and delay potential recoveries, highlighting the importance of strategic foresight in finance.

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