Bitcoin Rebounds 10% as Fed Slows Quantitative Tightening

Bitcoin has shown signs of recovery after hitting a recent low of $77,000. The cryptocurrency has rebounded to around $86,000, gaining momentum from the Federal Reserve’s decision to slow down its quantitative tightening program. On March 19, the Fed announced it would reduce its monthly Treasury sales cap from $25 billion to $5 billion starting in April. This shift in monetary policy is expected to benefit risk assets like Bitcoin.

The price of Bitcoin has increased by 3.53% over the past seven days. The cryptocurrency briefly touched $87,500 on March 20, marking a two-week high before settling around the $86,000 level. Former BitMEX CEO Arthur Hayes believes the recent dip to $77,000 likely represents the bottom for Bitcoin. In a March 20 post, Hayes declared that quantitative tightening is “basically over” following the Fed’s announcement. He suggested that further bullish momentum could come from either a Supplementary Leverage Ratio exemption or the restart of quantitative easing. These policies would increase market liquidity and potentially drive up Bitcoin’s price.

The Supplementary Leverage Ratio exemption was a temporary rule during the COVID-19 pandemic. It allowed banks to exclude US Treasury securities from certain calculations, making it easier for them to hold these assets. Quantitative easing, on the other hand, is a monetary policy where central banks purchase securities to increase the money supply. This approach aims to stimulate economic activity and encourage more spending.

Jamie Coutts, a chief crypto analyst, echoed Hayes’ sentiment, stating that “QT is effectively dead” and noted that treasury volatility has calmed down following the US dollar’s drop earlier this month. Jeff “JiHo” Zirlin, co-founder of Axie Infinity, viewed the Fed’s policy shift as “great for both crypto and equity markets.” He pointed out that the Fed now has “leeway to loosen up, providing more support for businesses and markets.”

The crypto market’s mood has improved following these developments. The Crypto Fear & Greed Index has moved into “Neutral” territory at 49 after staying in the “Fear” area since February 26. Despite Bitcoin being down nearly 22% from its January all-time high of $109,000, many analysts remain optimistic. Infinex founder Kain Warwick described the recent price action as a “normal mid-bull correction.” He stated that he would “need to see a much larger breakdown to flip bearish.” His baseline thesis is that the four-year cycle will hold once again, meaning Bitcoin would “keep grinding up through the rest of the year.”

Adding to the market optimism are rumors about a possible major update to US cryptocurrency policy. These whispers suggest an announcement could come on March 21, potentially involving a “change to strategy” following President Trump’s earlier executive order establishing a National Bitcoin Reserve. When Trump signed this executive order earlier in March, markets remained relatively calm. This was partly because the plan didn’t necessarily involve the US government buying Bitcoin directly.

Not all analysts agree with Hayes’ timeline for policy changes. Crypto analyst Benjamin Cowen disputes that quantitative tightening will end by April 1. Cowen clarified that while the pace has slowed, the Federal Reserve is still reducing its balance sheet by $35 billion per month through mortgage-backed securities. Fed Chair Jerome Powell stated during the press conference that inflation has “eased,” justifying their current approach. Powell explained, “We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity.”

For Bitcoin to resume its uptrend, technical analysts suggest it must close above the diagonal resistance of $86,351. The cryptocurrency’s price action might soon follow the M2 money supply, which has been rising recently. Bitcoin’s high correlation with the M2 money supply, combined with leverage factors, indicates that even small changes in liquidity can substantially impact its price. Some analysts suggest that a 10% increase in liquidity could more than double Bitcoin’s value.