jakiro
Source: The Crypto Advisor, compiled by: Shaw Bitcoin Vision
Over the past week, the atmosphere of our internal discussions has changed subtly.Nothing earth-shattering—no bold predictions, no sweeping conclusions—just a subtle but perceptible change in tone.The Fed’s recent decisions have ignited a sense of cautious excitement.A widely expected rate cut, coupled with a modest Treasury purchase program, is enough to get everyone actively engaged in the discussion again.This is not because the Fed’s policy is aggressive, but because it seems to be the first clear signal that some kind of shift is beginning.
The impact of a shift in monetary policy is rarely immediately apparent on the charts.The first thing you’ll hear about it is: mild fluctuations in funding markets, a slight decrease in market volatility, and a slight decrease in risk tolerance.Liquidity is not created overnight, but circulates quietly through the system, first changing market behavior and then affecting prices.
This dynamic has implications for all asset classes, but is particularly pronounced at the fringes—where valuations are less anchored, durations are longer, and outcomes are more sensitive to the cost of capital.Cryptocurrencies fall squarely into this category.The mainstream view is simple:Loose policies are good for cryptocurrencies.Rate cuts, balance sheet expansion, and declining yields will push investors to the far end of the risk curve, and cryptocurrencies have historically been at the far end of the risk curve.This logic is intuitive, widely accepted, and reinforced by memories of extreme times such as 2020.
But intuition is not evidence.Cryptocurrencies exist in only a handful of liquidity environments, and even fewer that resemble sustained quantitative easing.Our understanding of the relationship between cryptocurrencies and quantitative easing is mostly derived from inferences from special periods rather than based on deep historical experience.Before taking this shift as a clear signal, we might as well slow down and ask a more rigorous question: What is the data really telling us?Just as important, where does it stop?
Answering this question requires looking back at every period of meaningful liquidity expansion since the birth of cryptocurrencies, distinguishing expectations from mechanics, and narrative from observable behavior.
If we are going to discuss “Quantitative Easing (QE) is good for cryptocurrencies,” we first have to admit an uncomfortable fact:Cryptocurrency’s entire history has been in a very limited amount of liquidity environment, and only part of it is consistent with post-2008 quantitative easing in the traditional sense.
A clear measure is to use the Federal Reserve’s balance sheet (WALCL in FRED), which to a certain extent can better reflect system liquidity and the direction of policy implementation.Let’s take a look back at history.
1) First round of QE (2009-2010): Cryptocurrencies didn’t really exist (in the market) at that time
The first round of QE began in March 2009 and lasted about a year, and was characterized by large-scale purchases of mortgage-backed securities (MBS), agency bonds, and long-term Treasury securities.
Bitcoin was born in 2009, but there was no meaningful market structure, liquidity, or institutional involvement to study.This is crucial: the “first” quantitative easing policies that shaped modern markets were actually in prehistory for tradable cryptocurrencies.
2) The second round of QE and early post-crisis easing (2010-2012): Cryptocurrencies already exist, but on a very small scale
As the Federal Reserve enters the next phase of post-crisis easing, Bitcoin is already trading — but it’s still a small, retail-led experiment.During this period, any “relationship” between liquidity and cryptocurrency prices is heavily influenced by factors such as widespread adoption effects (the market goes from zero to something), exchange infrastructure maturation, and sheer discovery volatility.So this cannot be considered a clear macro signal.
3) The third round of QE (2012-2014): Comparability overlap appeared for the first time, but there are still constant noises
This is the first time that “continued balance sheet expansion” can be compared to actual active cryptocurrency markets.The problem is that the sample size is still small and is largely influenced by crypto-specific events (exchange failures, custody risks, market microstructure, regulatory shocks).In other words, even if QE overlaps with the cryptocurrency market, the signal-to-noise ratio is low.
4) Long-term plateau and normalization (2014-2019): Cryptocurrencies grew up in a world where QE was not every day
This is the forgotten part.The Fed’s balance sheet generally remained stable long after the third round of QE, before the Fed attempted to reduce its size.Cryptocurrencies have still experienced huge cyclical swings during this period – which should caution us against simply assuming that “money printing presses = rising cryptocurrencies”.Liquidity is important, but it is not the only driver.
5) COVID-19 Mitigation Period (2020-2022): This is the most important data point and also the most dangerous overfitting point.
This period is memorable because it demonstrated most clearly and loudly the phenomenon of “flooding liquidity but nowhere to be found,” and the cryptocurrency market reacted violently to it.But at the same time, this is an exceptional period defined by emergency policies, fiscal shocks, stimulus checks, lockdown-induced behavioral shifts, and a global risk reset—not a business-as-usual pattern.(In other words: it proves the existence of this phenomenon, not a universal law.)
6) Quantitative tightening (2022-2025) and return of “technical” bond purchases (late 2025): the situation becomes more complex, not simpler
The Federal Reserve began reducing the size of its balance sheet through quantitative tightening (QT) in 2022, then stopped QT earlier than many expected, and policymakers have expressed support for ending the QT process.
Just last week, the Federal Reserve announced it would purchase approximately $40 billion in short-term Treasury securities starting on December 12—clearly describing it as a reserve management/money market stabilization operation rather than a new round of stimulus.
This distinction is crucial to how we interpret cryptocurrency reactions: markets typically trade in directional and marginal changes in liquidity conditions, rather than the labels we attach to them.
The conclusion so far is:Since cryptocurrencies became a real market, we have only had a handful of relatively “clean” liquidity environments to study——And the most influential one (2020) is also the most unusual one.But that doesn’t mean QE is wrong.Rather, the statement itself is probabilistic: Loose financial conditions tend to favor long-term, high-beta assets, and cryptocurrencies are often the purest manifestation of this phenomenon.However, when we drill down into the data, we need to distinguish four factors:(1) Balance sheet expansion, (2) interest rate cuts, (3) dollar trends, and (4) risk sentiment—because they don’t always change in sync.
The first thing to understand is that,Markets rarely wait for liquidity to arrive.They often start trading policy trends long before policy mechanisms are reflected in data..This is especially true for cryptocurrencies, which tend to react to expectations—such as shifts in policy tone, signals from balance sheet policy, and expected changes in the path of interest rates—rather than to the slow, incremental impact of actual asset purchases.that’s whyCryptocurrency price movements tend to precede lower yields, a weaker U.S. dollar, and even before any material expansion of the Federal Reserve’s balance sheet.
It is important to clarify what is meant by “quantitative easing”.Easing policy is not a single variable, and its various forms have different impacts.Rate cuts, reserve management, balance sheet expansion and broader financial conditions tend to follow different timetables and sometimes move in different directions.Historically, cryptocurrencies have responded most stably to falling real yields and easing financial conditions, rather than simply to bond buying itself.Treating QE as a simple switch risks oversimplifying a far more complex system.
This nuance is important because the data we have support a directional relationship rather than a deterministic relationship.Loose financial conditions will increase the probability of positive returns from long-term high-beta assets such as cryptocurrencies, but they do not guarantee the timing or magnitude of the returns.In the short term, the price of cryptocurrency is still affected by market sentiment and position fluctuations. Its trend depends not only on macro policies, but also on positions and leverage..Liquidity helps, but it doesn’t override all other factors.
Finally, this cycle is fundamentally different from 2020.There was no emergency easing, no fiscal shock, and no sudden collapse in yields.What we are seeing is only marginal normalization – a slightly more relaxed system environment after a long period of tightening.For cryptocurrencies, this doesn’t mean prices will surge immediately, but it means market conditions are changing.When liquidity no longer poses a headwind, assets at the far end of the risk curve don’t need to do anything spectacular – they tend to do well because market conditions eventually allow it.
