Fed's Policy Shift Boosts Bitcoin Sentiment Amid Economic Uncertainty

Bitcoin's ability to reach the $77,000 price level appears increasingly unlikely, according to BitMEX co-founder Arthur Hayes. Following the Federal Reserve's latest announcement on March 19, Hayes suggested that quantitative tightening (QT) is "basically over," which could provide support for risk assets like Bitcoin. The Fed announced plans to slow its securities sell-off by reducing the monthly Treasury cap from $25 billion to $5 billion starting in April, a move that could alleviate liquidity pressures in financial markets.

On March 10, Bitcoin briefly dipped to $77,000, marking its lowest point since November. Hayes questioned whether this was the bottom and concluded that it was probable. He also highlighted that a more significant bullish catalyst could be the reinstatement of the Supplementary Leverage Ratio (SLR) exemption or a return to quantitative easing (QE). The SLR exemption, introduced during the COVID-19 pandemic, allowed banks to exclude US Treasury securities from leverage calculations, while QE is designed to stimulate economic growth through asset purchases.

Real Vision chief crypto analyst Jamie Coutts agreed with Hayes’ view, stating that QT is effectively dead. He noted that treasury volatility has calmed after a decline in the US dollar earlier this month, indicating improving liquidity conditions. Other market observers, such as Axie Infinity co-founder Jeff “JiHo” Zirlin, described the Fed’s policy shift as a positive development for both crypto and equities, suggesting that the central bank has room to ease financial conditions even more. Bitcoin venture capitalist Mark Moss predicted that “the dam is going to break” as QT comes to an end.

Market sentiment has already responded to the Fed’s stance. The Crypto Fear & Greed Index shifted to a “Neutral” rating of 49 after spending weeks in “Fear” territory since late February. Despite Bitcoin being nearly 22% below its January all-time high of $109,000, Infinex founder Kain Warwick sees this as a standard mid-bull market correction rather than a sign of broader weakness. Warwick is very confident in Bitcoin’s four-year cycle and expects prices to continue grinding higher for the remainder of the year.

Cathie Wood, the CEO of ARK Invest, believes that the White House is underestimating the risk of a recession in the United States, largely due to the impact of President Donald Trump’s tariff policies. At the Digital Asset Summit, Wood shared her concerns that the velocity of money is slowing down dramatically, which is a signal that economic activity is weakening. While US Treasury Secretary Scott Bessent downplayed the risk of a downturn, Wood suggested that a slowdown in capital movement could indicate declining GDP and ultimately push the government and Federal Reserve toward more pro-growth policies like tax cuts and monetary easing. Futures prices from CME Group show increasing confidence in multiple rate cuts during the second half of the year, reinforcing the idea that policymakers will move to support economic growth in response to weakening conditions.

ARK Invest has maintained a long-term investment outlook, particularly in the cryptocurrency sector. The firm, in partnership with 21Shares, launched a spot Bitcoin exchange-traded fund (ETF) that was approved on Jan. 11 of 2024, and now holds more than $3.9 billion in net assets. Through a collaboration with Eaglebrook Advisors, ARK also offers crypto portfolio solutions to wealth managers. At the summit, Wood explained that long-term innovation is still the core of ARK’s investment philosophy despite recent market fluctuations. When asked about the viability of crypto as an investment, she pointed to the firm’s continued expansion beyond just Bitcoin, Ethereum, and Solana, which proves that the company is very confident in the broader blockchain ecosystem.

The investment landscape for digital assets also benefited from improving regulatory conditions. Wood mentioned that pro-crypto policy shifts are giving institutions a lot more confidence to allocate capital to the space. She referenced ARK’s early research from 2016, which identified Bitcoin as the foundation of a new asset class, and observed that institutional investors, once skeptical, now recognize a fiduciary responsibility to provide clients with exposure to digital assets.

BlackRock’s head of digital assets, Robbie Mitchnick, believes Bitcoin is poised to thrive in a recessionary macro environment, despite the skepticism from some analysts. In a March 19 interview, Mitchnick explained that Bitcoin tends to benefit from increased fiscal spending, rising deficits, lower interest rates, and monetary stimulus, which are conditions that often accompany economic downturns. He also pointed out that fears of broader social disorder can act as a catalyst for Bitcoin, making it an attractive asset during uncertain times. While many still categorize Bitcoin as a risk-on asset that will suffer in a recession alongside equities and high-yield bonds, Mitchnick believes this classification is misguided. He thinks that the market has yet to fully grasp Bitcoin’s unique role in a changing financial landscape, seeing it as an opportunity for education in a still-nascent asset class. BlackRock has been working with clients to navigate these conflicting narratives, particularly as some of the firm’s long-term Bitcoin investors saw the recent market correction as a buying opportunity rather than a cause for concern.

On the other hand, not all analysts share BlackRock’s bullish stance. Researchers at Coinbase suggested that the optimism surrounding crypto in the first quarter was misplaced due to fears of a severe US economic slowdown. In its March 17 monthly outlook, Coinbase Institutional pointed to concerns over recession risks and recent tariff policies as major factors that have weighed on market sentiment. Despite near-term uncertainties, BlackRock remains a driving force behind institutional Bitcoin adoption. The firm’s iShares Bitcoin Trust ETF holds $48.7 billion in net assets, making it the largest Bitcoin investment product in existence. Mitchnick downplayed the recent net outflows from spot Bitcoin ETFs, and attributed them to hedge funds unwinding their spot-futures arbitrage trades rather than a shift in sentiment among long-term holders.