Fed's Treasury Buys Spur Crypto Optimism Amid "Invisible QE" Debate

The Federal Reserve's recent actions have sparked fresh debates over whether its purchases of Treasury securities constitute a new form of quantitative easing. The central bank has resumed buying $20 billion in Treasury bills monthly, a move it claims is part of routine liquidity management. However, some analysts argue this is more than routine, noting the purchases may be a coordinated effort with the Treasury to stabilize markets amid large budget deficits and rising debt issuance.

Coinbase, the leading cryptocurrency exchange, has weighed in on the Fed's policy shift, suggesting that the central bank's "invisible QE" could support the crypto market. The firm highlighted that improving liquidity conditions and growing expectations of further rate cuts could create a more favorable macroeconomic environment for risk assets like bitcoin.

The Federal Reserve's decision to end quantitative tightening in December adds to this bullish sentiment.

Market observers are also watching for how the Fed's strategy might interact with broader fiscal policies, especially as the Treasury ramps up short-term debt issuance. While the central bank insists it is not engaging in full-scale QE, its interventions have altered the composition of government debt and may indirectly suppress long-term yields. This approach has raised concerns among some economists, who see it as a form of financial repression.

The Fed's "Invisible QE" and Crypto Implications

The Fed's purchase of short-term Treasury bills is being viewed by some as a form of unconventional monetary easing, even if it isn't labeled as such. The central bank has the authority to buy up to $40 billion in Treasuries per month under its Reserve Management Purchases (RMP) program. These purchases are intended to maintain ample liquidity in the banking system and prevent disruptions tied to tax payments and seasonal cash flows.

For Coinbase and other digital asset market participants, this liquidity injection may be a key factor in crypto's potential December rebound. The firm cited its internal M2 money supply index, which tracks liquidity trends, to argue that systemic conditions are becoming more supportive for risk assets. As the Fed's balance sheet expands and rates trend lower, capital that has been sidelined may begin to flow back into digital markets.

Market Reactions and Analysts' Outlooks

The Fed's RMP program has already had visible effects on financial markets. The 10-year Treasury yield climbed to 4.20% as of late last week, a three-month high. Gold and silver prices also showed signs of strength, suggesting investors are seeking safe-haven assets amid uncertainty. Meanwhile, the U.S. dollar weakened, which often favors cryptocurrencies and other global equities.

Michael Burry, the hedge fund manager known for his role in the 2008 financial crisis, has raised concerns about the Fed's RMP program. He argues it is a cover for a return to QE-style interventions to stabilize a fragile banking system. Burry has also warned that the U.S. financial system remains dependent on central bank liquidity, even with over $3 trillion in reserves.

Analysts at Nansen and other financial institutions are closely monitoring the Fed's forward guidance for further clues. While the rate cut itself has already been largely priced in, the tone of Fed Chair Jerome Powell and the anticipated leadership transition in 2026 could have significant implications for crypto markets.

Risks to the Outlook

Despite the optimism, several risks could dampen the Fed's efforts and crypto markets' prospects. The Treasury's shift toward short-term debt and active buybacks of longer-maturity bonds may not be enough to counter global inflation and fiscal risks. Some economists, including Deutsche Bank analysts, warn of a secular rise in term premiums and long-term interest rates, which could pressure markets.

Moreover, the Fed's coordination with the Treasury raises concerns about the boundaries of fiscal dominance. Critics argue that the central bank is being drawn too deeply into government financing, potentially undermining its independence and inflation control. The policy environment could become increasingly unpredictable if political pressures mount or economic data signals conflicting trends.

For now, Coinbase and other market participants are betting on a December turnaround, citing favorable macroeconomic conditions and a shift in policy expectations. But as Michael Burry and others caution, the underlying fragility of the financial system and the Fed's evolving role in fiscal management could create unexpected turbulence in the months ahead.