Fed ETF Purchases in a Stock Slump Could Also Lift Crypto, Analysts Say

The Federal Reserve could consider buying stock exchange-traded funds in the event of a sharp equity-market selloff, a move that may also benefit cryptocurrencies by expanding liquidity, according to market participants.

Cointelegraph reported on July 8 that Bloomberg ETF analyst Eric Balchunas said the Fed may eventually take the unprecedented step of directly purchasing equity ETFs in a bear market because the U.S. stock market has grown so large.

About 58% of Americans own stocks, Balchunas said, arguing that a prolonged bear market would intensify political pressure to contain the downturn. He also cited the Fed's actions during the Covid-19 pandemic in 2020, when it bought about $8.7 billion of corporate-bond ETFs to provide liquidity to credit markets.

Traders and analysts say such a policy could also support digital assets. Alvin Kan, chief operating officer at Bitget Wallet, said liquidity injections through Fed rate cuts, balance-sheet expansion and ETF purchases could revive demand for risk assets and draw capital back into crypto markets. That, he added, could pave the way for a medium- to long-term rally similar to 2021.

Tim Sun, a senior researcher at HashKey Group, said cryptocurrencies are not direct targets of Fed support, but their prices are heavily influenced by dollar liquidity, real interest rates and sentiment in equity markets. If investors conclude that a policy backstop is in place, the risk premium on Bitcoin and other major cryptocurrencies would narrow, he said.

Caution remains. Jeff Mei, chief operating officer at BTSE, said the Fed would struggle to deliver large-scale liquidity support while inflation remains elevated, though it could still use other policy tools to stabilize markets if needed.