Bitcoin Braces for $6.6 Trillion Shake-Up After Fed Shock
Bitcoin has found stability following a tumultuous period, thanks to an unexpected bullish intervention from Tesla billionaire Elon Musk that has caught the market off guard. The bitcoin price is currently trading at approximately $112,000 per bitcoin, following concerns about a potential drop below $110,000 yesterday, amidst a significant warning regarding the bitcoin price. Following the bitcoin price “flash crash” that prompted a significant warning from BlackRock, Federal Reserve chair Jerome Powell has indicated that the Fed is nearing a stage where it can conclude its quantitative tightening balance sheet reduction program. Federal Reserve chair Jerome Powell has indicated that the Fed may soon conclude its quantitative tightening program, reflecting a dovish shift that is anticipated to elevate the bitcoin price. “Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said. “We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”
The bitcoin price experienced another minor flash crash this morning, dropping to approximately $108,500 before rebounding to over $111,000 in a movement that underscores the market’s volatility. The decline occurred as Federal Reserve governor Stephen Miran cautioned that U.S.-China trade tensions are contributing to economic uncertainty and heightening downside risks to growth. “If monetary policy stays as restrictive as it is, and you have a shock like this hit the economy, it does materially increase the negative consequences of that shock,” Miran told, expressing a desire for a larger-than-expected 50 basis point interest cut from the Fed this month, although he anticipates it will align with September’s 25 basis point cut. “I think that we are probably set up for three 25-basis-point cuts this year,” Miran said, cautioning that the economy is dependent on increasing risks surrounding U.S.-China trade. Last week, U.S. President Donald Trump’s abrupt intensification of his ongoing trade conflict with China triggered a significant sell-off in the cryptocurrency market, erasing approximately $19 billion in investments tied to the bitcoin price. “We will have to see how the next few weeks play out,” Miran stated.
China has accused the U.S. of inciting panic regarding its rare earth controls, with an official stating that Treasury Secretary Scott Bessent made “grossly distorted” comments about a leading Chinese trade negotiator and dismissing a White House request to reverse the restrictions. The Fed’s quantitative tightening program, initiated in 2022, has diminished the Fed’s balance sheet to $6.6 trillion, down from approximately $9 trillion at its peak. This shift is exerting pressure on risk assets like bitcoin as the Fed endeavors to withdraw liquidity from the system. “Powell focused on quantitative tightening, a process in which the Fed decreases its balance sheet.” David Morrison said “The balance sheet grew to unprecedented levels during the Great Financial Crisis, with more added amidst the Covid panic.” Powell indicated that this reduction programme might soon be concluded “The Fed has been gradually reducing its balance sheet, thereby tightening monetary policy.” The conclusion of the quantitative tightening program coincides with widespread expectations that the Fed will reduce interest rates once more during its upcoming Federal Open Markets Committee meeting later this month. Meanwhile, bitcoin exchange-traded funds have surged to unprecedented heights.
“This institutional firepower, combined with the Federal Reserve’s dovish stance following September’s rate cut and ongoing macroeconomic uncertainties including the U.S. government shutdown, reinforced bitcoin’s emerging role as a digital hedge alongside gold, which itself broke through the $4,000 per ounce barrier [last] week,” Gadi Chait. “As we progress through ‘Uptober,’ it will be interesting to see if we make any meaningful move higher.” Fed policy developments at the October 28-29 FOMC meeting may serve as a catalyst for a move that can either extend the rally or trigger healthy consolidation. The Fed maintained interest rates at a standstill through 2025, driven by apprehensions that inflation might resurface, until it reduced rates last month. Powell is now perceived as shifting his focus to worries regarding the jobs market. “Powell … expressed concern over the recent deterioration in the U.S. labour market,” Morrison stated. “This is now the focus for the Fed, taking over from inflation which continues to be well above the U.S. central bank’s 2% target rate.” The markets are increasingly considering the possibility of two 25 basis point rate cuts before the year concludes.
