The markets are currently abuzz with the hypothesis that the US Federal Reserve might conclude its quantitative tightening program by May. This scenario, once unlikely, is now considered nearly certain by the Polymarket platform, which could significantly impact the crypto market.
Monetary Easing in Sight?
The crypto and financial markets are under pressure ahead of the FED's decisions. Since June 2022, the FED has been reducing the money supply via quantitative tightening and raising rates to curb inflation. However, with budgetary tensions in place, some officials are concerned about the side effects. The minutes from the last committee meeting reveal concerns over the debt ceiling, legitimizing a potential slowdown in tightening efforts. On Polymarket, a bet titled 'Will Fed end QT before May?' shows a 100% probability with a trading volume exceeding $6.2 million. For investors, the end of QT seems already set, despite the FED's lack of official confirmation.
A Bullish Catalyst for the Crypto Market?
Ending QT would mean a gradual return of liquidity to the financial markets, a signal generally favorable to risky assets, including cryptocurrencies. In 2023 and 2024, despite a restrictive environment, Bitcoin has shown resilience. A more accommodative FED policy could boost this bullish trend, especially since rate cuts are also under consideration for the year's latter half. However, some analysts caution against undue optimism. The US economy hasn't yet shown alarming slowdown signs, and the FED might decide to hold its course. Should the markets overestimate easing prospects, a sharp correction could ensue. Historically, monetary policy plays a crucial role in crypto market cycles. If the end of QT is confirmed, the sector could gain new momentum. Nonetheless, a hasty investor reaction could amplify volatility, especially following the recent drop of major altcoins earlier this week.
The coming weeks will clarify the crucial question of whether the FED will choose caution or stimulus. The end of QT promises significant market impact, but undue haste may heighten instability.
