Key points to remember:
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Federal Reserve balance sheet limits and possible repo operations point to improving liquidity conditions that could boost Bitcoin and other risk assets.
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Fiscal stress and industry weakness are currently weighing on markets, but easing tariffs and a targeted stimulus package could support a recovery in crypto demand.
Bitcoin (BTC) and the broader crypto market could remain under pressure ahead of the US Federal Reserve’s next interest rate decision on December 10. Expectations regarding the direction of monetary policy remain very divided, with concerns about inflation clashing with signs of a slowdown in economic activity.
Traders are split between a 0.25% cut and keeping rates at 4%, based on implied quotes in government bond markets. The Fed’s most cautious members say tariffs imposed by U.S. President Donald Trump have increased inflationary pressure, reducing room to ease rates and support growth. At the same time, the US labor market is showing clear signs of slowing, according to to BlackRock reports.
Attributing Bitcoin weakness solely to the Fed seems wrong
Concerns about persistent inflation have been regularly raised by Fed officials. “I am concerned that restrictive monetary policy will weigh on the economy, particularly in terms of how it affects low- and middle-income consumers,” Fed Governor Christopher Waller said. said Monday. Waller dismissed rumors that missing official data, resulting from the government shutdown, hurt the Fed’s visibility.
Still, blaming Bitcoin’s weakness solely on the Fed seems inaccurate, given that the downtrend began in early October. U.S. tariffs on imports helped reduce the monthly government deficit and the Fed’s balance sheet continued to shrink, causing the U.S. dollar to strengthen against a basket of major currencies. Historically, Bitcoin has an inverse correlation with the Dollar Index (DXY).
Pinpointing the exact trigger for Bitcoin’s weakness since the October 6 all-time high is nearly impossible. Financial conditions have deteriorated with slowing freight activity, slowing real estate markets and tighter corporate cash flows, according to Savvy Wealth. report. As a result, Bitcoin’s decline may stem more from broad risk aversion than from dollar strength alone.
The Fed has indicated that it will no longer let its assets under management fall below the current level of $6.5 trillion starting in December. This development could be offset by the launch of repurchase agreement (Repo) Operations. In practice, the Fed’s balance sheet remains unchanged while liquidity is injected into financial markets, thereby alleviating liquidity problems by increasing bank reserves.
Meanwhile, Trump ordered US Treasury Secretary Scott Bessent to prepare a recovery campaign aimed at low-income households for early 2026, and import duties could be gradually reduced to reduce inflation risks. Yet fiscal conditions will deteriorate in 2026 with the One Big Beautiful Bill Act taking effect.
Bitcoin could rebound strongly as liquidity returns.
By the start of the year, uncertainties about the economic outlook should be much less, for better or worse. Currently, weaknesses are evident in the real estate and automobile sectors, both of which weigh heavily on growth. pressure on regional banks. Bitcoin and other riskier assets have already reacted defensively, but they will benefit the most once liquidity returns.
Related: Bitcoin Charts Mark $75,000 Bottom, But Analysts Predict 40% Rally Before End of 2025
Bitcoin is not hostage to American monetary policy, especially in a context of a weakening labor market. The Fed has limited room for action budgetary conditions remain strictleaving expansionary measures as a fallback. Over time, liquidity should return to markets, helping to mitigate a greater economic impact and creating a more favorable environment for a strong rally in scarce assets.
This article is intended for general information purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
