Bitcoin Faces Liquidity Squeeze as Fed Ends QT and Treasury Locks Cash - Blockonomi

by · Blockonomi

TLDR:

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  • The Fed’s QT end alone may not trigger a crypto rebound without new liquidity from QE or Treasury drawdowns.
  • Treasury’s cash balance climbed to $965B in October, draining liquidity from markets and hitting Bitcoin.
  • Bank reserves fell to the low end of ample levels, showing tighter conditions in funding markets.
  • Liquidity could improve by late November as QT ends and the government resumes spending.

Liquidity has become the main story in crypto again. Traders are watching every move from the Fed and the Treasury. 

The end of quantitative tightening (QT) is approaching, but the market still feels tight. Bitcoin’s price remains range-bound, and altcoins show little strength. For many, the problem isn’t sentiment, it’s money flow.

Ted (@TedPillows) pointed out that crypto history may repeat itself. He noted that when the Fed ended QT in October 2019, altcoins fell by 42% before recovering months later. The rally only began when the Fed restarted quantitative easing (QE) in March 2020. 

During that time, the S&P 500 moved higher while crypto lagged. He said that ending QT doesn’t spark rallies by itself; liquidity must return to the system.

Treasury Cash Build Drains Crypto Liquidity

LondonCryptoClub (@LDNCryptoClub) explained how the Treasury General Account (TGA) is draining liquidity. 

With the government shutdown halting spending, the TGA has swelled to $965 billion, about $150 billion higher in October. That’s money leaving the market instead of circulating through the economy.

The post also mentioned a rise in the Fed’s Reverse Repo Program (RRP) as banks adjust balance sheets before month-end. Around $20 billion moved into the RRP this week, further tightening financial conditions. 

At the same time, bank reserves fell toward the lower limit of the Fed’s “ample” range. That pressure has lifted short-term funding costs, seen through higher SOFR spreads and record repo usage.

According to the update, eligible firms borrowed about $10 billion from the Fed’s Standing Repo Facility, the highest since it launched in 2021. The situation isn’t severe, but it’s clear that liquidity is tight. 

Crypto markets, which depend heavily on dollar liquidity, have struggled to break higher as a result.

Relief Could Come After QT Ends in December

LondonCryptoClub noted that some relief may arrive soon. Once month-end adjustments pass, the RRP should shrink again, returning about $20 billion to the market. That could ease some of the stress in funding markets. 

The bigger shift may come when the Fed officially ends QT on December 1. At that point, the central bank’s balance sheet would stop shrinking, adding liquidity for the first time in years.

A potential government reopening in mid-November could also change the outlook. When the shutdown ends, Treasury spending would draw down the TGA, releasing a wave of cash into the market. That process could lift bank reserves and restore smoother funding conditions.

Both analysts suggested that late November could mark a turning point. BTC may benefit from the easing liquidity pressure, but until then, markets could stay muted. The current setup looks tight, but change is coming.

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