10/27 update below. This post was originally published on October 25
Bitcoin has swung wildly this month as Elon Musk suddenly sets alarm bells ringing and warnings of an an “imminent dollar and financial crisis” spook traders.
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The bitcoin price has surged back from a “flash crash” that sent it toward $100,000 per bitcoin, up almost 10% and topping $111,000 as Binance’s founder Changpeng “CZ” Zhao issues a huge, $28 trillion bitcoin prediction.
Now, as U.S. president Donald Trump weighs a $2,000 Covid stimulus check-style tariff dividend, Wall Street giants are bracing for the Federal Reserve to end the reduction of its $6.6 trillion balance sheet, known as quantitative tightening—and predicted to unleash a fresh round of central bank money printing and send bitcoin to a $1 million price.
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U.S. Federal Reserve chair Jerome Powell has said he’s looking to end the period of so-called quantitate tightening that’s sucked liquidity from the market—something some expect to send the bitcoin price sharply higher.
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“Starting in next year, we’re going to see an acceleration of money printing at least out of the United States,” Arthur Hayes, the cofounder of crypto derivatives pioneer BitMex who went onto launch the Maelstrom investment company, said in a wide-ranging interview with crypto news outlet Milk Road, pointing to a speech earlier this month by Fed chair Jerome Powell.
“[Quantitative tightening] is over. They’re going to be releasing trillions of dollars into the mortgage markets. Rates are coming down and so the environment is ripe for appreciation of assets.”
10/27 update: Bitcoin has surged over the weekend to over $116,000 per bitcoin before dropping back slightly, rekindling hopes that the market could soon surpass its previous all-time high.
The surge higher comes as analysts bet the Federal Reserve’s bank reserves falling to under $3 trillion, the 2nd-lowest since January 2023, could herald a bitcoin price boom.
“This nearly matches the 2023 low of $2.93 trillion, just before the regional banking crisis,” analysts with The Kobeissi Letter posted to X. “Reserves are now on track for their 3rd consecutive monthly decline.”
Falling liquidity has been linked to periods in 2019, in 2020 and in 2023 when the bitcoin price has made out-sized gains—something that now coincides with Wall Street exchange-traded funds (ETFs) buying up huge swaths of bitcoin.
“Reserves are within five weeks of the danger-zone, ETFs are hoovering supply, and the scarcity effect is loading in the chamber,” financial author Adam Livingston posted to X. “This is the mother-of-all liquidity pivots. Get ready, kids.”
Others have pointed to a dip in the gold price as the return of “risk-on” mode that’s likely to support bitcoin and other cryptocurrencies.
“As bitcoin and ethereum gain momentum while gold declines, markets are clearly switching back to “risk-on” mode,” analysts with B2BInPay wrote in emailed comments.
“The macro background is driven by cooling U.S.–China trade tensions, which are lifting equities and digital assets while limiting demand for traditional safe havens. Meanwhile, Treasury yields remain steady and the dollar trades mixed but resilient, which is enough to pressure bullion, yet not strong enough to tighten liquidity or constrain crypto flows.”
The Fed’s quantitative tightening program, which began in 2022, has reduced the Fed’s balance sheet to $6.6 trillion, from around $9 trillion at its peak, putting pressure on risk assets such as bitcoin as the Fed tries to suck liquidity from the system.
“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 in a speech, while also opening the door to further interest rate cuts.
This week, analysts with JPMorgan and Bank of America predicted the Fed will this month stop shrinking its $6.6 trillion balance sheet, in notes seen by Bloomberg, ending a process designed to remove liquidity from financial markets.
“Money markets at current or higher levels should signal to the Fed that reserves are no longer ‘abundant,” Bank of America’s Mark Cabana and Katie Craig wrote.
Meanwhile, the Fed is widely expected to cut interest rates again, shaving off another 25 basis points next week after resuming its rate cutting cycle in September—something that is also expected to fuel risk assets such as bitcoin as cash more easily flows around the system.
The delayed consumer price index (CPI) report for September on Friday showed U.S. inflation rose less than expected to 3% last month, below the expectations of 3.1% among economists polled by Bloomberg.
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The bitcoin price has dipped back from its all-time highs but some are predicting bitcoin and other risk assets are about to surge.
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“Given the latest news on layoffs, some analysts may be wondering if the central bank should go for a bigger cut, if not this month, then maybe in December,” David Morrison, senior market analyst at Trade Nation, said in emailed comments.
“The Federal Reserve has made it clear that it is far more worried about the labour market than it is about inflation.”
The bitcoin price has matched gold’s rally over the last 12 months, with the pair surging as part of the so-called “debasement trade” that’s seen traders turn to hard assets like gold, silver and bitcoin as hedges against money printing and inflation that reduces the dollar’s purchasing power.
“[Gold and silver are] really being purely valued on fiat debasement, whereas bitcoin and crypto still have this connection to to U.S. big tech, which I think they’ll shed at some point,” Hayes told Milk Road. “But in any event, we know which way the world is going. It’s more fiat debasement. Those who have the foresight, who are looking what’s going on, they are voting with their money and they’re saying, ‘I want gold. I want bitcoin. I want silver. I want stocks.’ I just think that crypto is the fastest horse.”