10/16 update below. This post was originally published on October 15
Bitcoin has stabilized after a rocky few days, with a bullish intervention by Tesla billionaire Elon Musk taking the market by surprise.
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The bitcoin price is trading around $112,000 per bitcoin after looking at risk of plummeting under $110,000 yesterday—even as a serious bitcoin price warning light flashes red.
Now, after the bitcoin price “flash crash” triggered a stark BlackRock warning, Federal Reserve chair Jerome Powell has said the Fed is fast approaching a point when it can end its quantitative tightening balance sheet reduction program.
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Federal Reserve chair Jerome Powell has said the Fed may soon wind down its quantitate tightening program amid a dovish flip that’s predicted to boost the bitcoin price.
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“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 prepared remarks for his speech at the National Association for Business Economics conference in Philadelphia, it was reported by CNBC, while also opening the door to further interest rate cuts.
“We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”
10/16 update: The bitcoin price suffered another smaller flash crash this morning, plunging to around $108,500 before bouncing back to over $111,000 in a move that highlights just how tightly wound the market is.
The dip came as Federal Reserve governor Stephen Miran warned U.S.-China trade tensions are adding to economic uncertainty and increasing downside risks to growth.
“If monetary policy stays as restrictive as it is, and you have a shock like this hit the economy, it does materially increase the negative consequences of that shock,” Miran told Fox Business, adding he wanted to see a larger-than-expected 50 basis point interest cut from the Fed this month though expects it will match September’s 25 basis point cut.
“I think that we are probably set up for three 25-basis-point cuts this year,” Miran said, warning that the economy is hinged on escalating risks around U.S.-China trade.
Last week, U.S. president Donald Trump’s sudden escalation of his simmering trade war with China sparked a huge crypto sell-off, wiping out around $19 billion worth of bets on the bitcoin price.
“We will have to see how the next few weeks play out,” Miran added.
China has accused the U.S. of stoking panic over its rare earth controls, with an official saying Treasury secretary Scott Bessent had made “grossly distorted” remarks about a top Chinese trade negotiator and rejecting a White House call to roll back the curbs, Reuters reported.
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.
“Powell concentrated on quantitative tightening, whereby the Fed reduces its balance sheet. The balance sheet grew to unprecedented levels during the Great Financial Crisis, with more added amidst the Covid panic,” David Morrison, senior market analyst at Trade Nation, said in emailed comments. “The Fed has been gently reducing its balance sheet, thereby tightening monetary policy. Powell suggested that this reduction programme may soon be wound down.”
The winding down of the quantitative tightening program comes as the Fed is widely expected to cut interest rates again at its Federal Open Markets Committee (FOMC) meeting later this month and bitcoin exchange-traded funds (ETFs) have rocketed to record levels as Wall Street financial institutions pile in.
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The bitcoin price has surged in recent months though a dip has divided those who are betting on a coming bitcoin price boom and those who fear a crash is looming.
Forbes Digital Assets
“This institutional firepower, combined with the Federal Reserve’s dovish stance following September’s rate cut and ongoing macroeconomic uncertainties including the U.S. government shutdown, reinforced bitcoin’s emerging role as a digital hedge alongside gold, which itself broke through the $4,000 per ounce barrier [last] week,” Gadi Chait, head of investment at Xapo Bank, said via email, with lower interest rates generally seen as supportive of risk assets such as high growth technology stocks and bitcoin.
“As we progress through ‘Uptober,’ it will be interesting to see if we make any meaningful move higher. Fed policy developments at the October 28-29 FOMC meeting may be a catalyst for a move that can either extend the rally, or trigger healthy consolidation.”
The Fed had kept interest rates on hold through 2025 due to fears inflation could return until cutting rates last month, with Powell now seen flipping to concerns over the jobs market.
“Powell … expressed concern over the recent deterioration in the U.S. labour market,” Morrison said. “This is now the focus for the Fed, taking over from inflation which continues to be well above the U.S. central bank’s 2% target rate. The markets continue to factor in the likelihood of two 25 basis point rate cuts before the year-end.”