The Fed's End of QT and the Imminent Rate Cut: A Strategic Inflection Point for Equities and Crypto

The Federal Reserve's decision to end its quantitative tightening (QT) program on December 1, 2025, alongside its recent 25-basis-point rate cut in October, marks a pivotal structural shift in monetary policy. This move, coupled with expectations of further rate cuts in 2025 and 2026, has triggered a recalibration of investor positioning across equities and crypto markets. As liquidity conditions normalize and the Fed navigates a fragile labor market amid stubborn inflation, the interplay between these asset classes reveals divergent narratives shaped by macroeconomic tailwinds, regulatory dynamics, and institutional behavior.

The Fed's Policy Pivot: A New Liquidity Regime

The Fed's cessation of QT-a three-year program to reduce its balance sheet-injects $13.5 billion into the financial system, signaling a pivot toward accommodative policy. This liquidity infusion, combined with the October 2025 rate cut bringing the federal funds rate to 3.75%-4.00%, reflects the central bank's balancing act between curbing inflation and mitigating downside risks in a softening labor market. Market participants now price in a near-3% policy rate by late 2026, outpacing the Fed's projections. The December 2025 meeting, with a 69% probability of another 25-basis-point cut, remains a focal point for capital flows and asset reallocation.

Equities: Resilience Amid Macroeconomic Uncertainty

Equities have emerged as a preferred haven in this new regime. The S&P 500, projected to close near 6,000 by year-end 2025, benefits from stabilized inflation expectations and robust earnings growth. Institutional investors are increasingly allocating to defensive sectors and low-volatility strategies, viewing equities as a hedge against macroeconomic uncertainty. J.P. Morgan analysts note that equities' cash-generating nature and alignment with regulatory frameworks have solidified their appeal, particularly as cryptocurrencies face tightening oversight.

Crypto: A Tale of Two Narratives

Bitcoin's trajectory, however, tells a more nuanced story. The end of QT and the October rate cut spurred a rebound in BTC-USD above $92,000, driven by institutional demand and regulatory tailwinds. Vanguard's recent policy shift to allow crypto ETF and mutual fund access for clients further catalyzed a 6% price jump. Yet, Bitcoin has underperformed equities and gold in recent months, highlighting a liquidity preference for traditional assets. This divergence underscores crypto's vulnerability to structural risks, including index methodology changes and liquidity fragility during off-peak hours.

Notably, Bitcoin's price movements have become increasingly correlated with Treasury yields, with a 10-basis-point shift in the 10-year yield influencing roughly $2,000 of BTC's price movement. While ETF inflows reversed four weeks of outflows in late 2025, the asset's "digital gold" narrative remains contested, as capital continues to favor equities over crypto.

Structural Divergence: Capital Reallocation and Investor Behavior

The bifurcation between equities and crypto is not merely technical but psychological. Institutional adoption of digital assets has accelerated in 80% of reviewed jurisdictions, driven by regulatory clarity. However, equities' entrenched role in diversified portfolios and their alignment with macroeconomic stability have led to a reallocation of capital toward traditional markets. This shift is evident in the S&P 500's outperformance against Bitcoin and gold, as well as the growing preference for defensive equity strategies amid elevated volatility.

Strategic Implications for Investors

As the Fed's policy pivot unfolds, investors must navigate a landscape defined by divergent asset class trajectories. Equities, bolstered by earnings resilience and regulatory tailwinds, offer a hedge against macroeconomic uncertainty. Meanwhile, crypto remains a high-risk, high-reward asset, contingent on regulatory developments and liquidity conditions. The December 2025 meeting will be critical in determining whether the Fed's accommodative stance fuels a broader crypto rally or reinforces equities' dominance.

For now, the market's 88.8% probability pricing of a December rate cut suggests a continuation of liquidity-driven optimism. Yet, as history shows, structural shifts often test the limits of investor sentiment. The coming months will reveal whether Bitcoin can reclaim its narrative or if equities will cement their role as the cornerstone of a post-QT world.