"QT is over"…Wall Street watches Bitcoin market while preparing for 'liquidity flip'

Minseung Kang

Summary

On Wall Street, attention is focused on the possibility that the Fed's quantitative tightening (QT) could end, and they are preparing for a large-scale liquidity flip.
Recently, Bitcoin rebounded after Elon Musk's 'dollar crisis' remarks and surpassed $111,000.
Wall Street analyzed that risk assets, including Bitcoin, have entered a new upward phase amid expectations of a Fed policy shift and increased liquidity supply.

There is analysis that Wall Street is preparing for a large-scale 'liquidity flip (Fed Flip)' as the U.S. central bank, the Federal Reserve (Fed), is likely to effectively finish its quantitative tightening (QT) policy.

According to Forbes on the 25th (local time), over the past month Bitcoin repeatedly surged and plunged after Elon Musk's 'dollar crisis' remarks, then rebounded by nearly 10% and surpassed $111,000. Earlier, Binance founder Changpeng Zhao also said, "Bitcoin could grow to a $28 trillion market in the long term."

Forbes reported that JPMorgan and Bank of America (BofA) analysts forecast, "The Fed is likely to stop shrinking its balance sheet within this month." The Fed's balance sheet has been reduced from about $9 trillion to $6.6 trillion since the start of QT in 2022.

Federal Reserve Chair Jerome Powell recently said in a speech, "We plan to stop shrinking the balance sheet when we judge liquidity levels to be sufficient," and also left open the possibility of further rate cuts. The market expects the benchmark rate to be cut again by 0.25 percentage point next week.

BitMEX co-founder and Maelstrom investment firm CEO Arthur Hayes said in an interview with crypto media Milk Road, "Large-scale liquidity supply in the U.S. will resume from next year," adding, "QT is over, and the Fed will inject trillions of dollars into the mortgage market." He added, "This environment will be favorable for risk assets, including Bitcoin."

Meanwhile, the U.S. September consumer price index (CPI) rose 3% year-on-year, slightly below the market expectation (3.1%). As inflationary pressures show signs of easing, investors are increasing flows into real assets such as Bitcoin, gold, and silver amid expectations of a weaker dollar and a shift to more accommodative monetary policy.

The outlet analyzed, "Wall Street views the Fed's $6.6 trillion balance sheet as essentially its final size. Risk assets, including Bitcoin, are entering a new upward phase."

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