Fed cuts 25 bps, but there is another hidden macro challenge looming

The Federal Reserve reduced interest rates by 25 basis points and signaled a possible end to its balance sheet runoff, a development potentially more impactful for Bitcoin than the rate cut. With the overnight reverse repo facility nearly depleted, further quantitative tightening could directly drain bank reserves, amplifying the effect on liquidity, real yields, and the dollar – all key factors influencing Bitcoin’s performance. Prior to the meeting, real yields were already easing and the dollar index had fallen, creating a favorable environment for a dovish Fed response. Chair Powell’s comments indicated the Fed views policy as “sufficiently restrictive” and is prepared to adjust quantitative tightening to maintain “ample reserves,” a signal that carries more weight for risk assets than the rate cut. ETF data shows a positive correlation between Fed policy and Bitcoin inflows, with approximately $446 million in net inflows into US spot Bitcoin funds the week leading up to the decision. The article concludes that the direction of Bitcoin will be determined more by liquidity guidance and the trajectory of real yields and the dollar than by the nominal funds rate, and a continued dovish tone from Powell could lead to further gains for BTC.

(Source：CryptoSlate)