The Federal Reserve is halting its balance sheet reduction, also known as quantitative tightening (QT), signaling a significant dovish shift in monetary policy. Recently, the Fed injected approximately $29 billion into the financial system, a move aimed at easing pressure in funding markets as bank cash reserves approached a low of $2.8 trillion.

This macro liquidity shift stands in stark contrast to Bitcoin’s recent performance. Over the last four days, spot Bitcoin ETFs have experienced heavy outflows totaling more than $1.34 billion, accompanied by a roughly 10% drop in Bitcoin’s price over the past week.

### The End of Quantitative Tightening

After steadily reducing its asset portfolio from nearly $9 trillion to about $6.6 trillion, the Federal Reserve has announced it will stop shrinking its balance sheet. Instead, it will begin reinvesting proceeds from maturing bonds, effectively putting its QT program on hold.

Officials have emphasized that this decision is a direct response to rising stress in funding markets, aiming to stabilize liquidity and support the financial system.

### Implications for Crypto Markets

For cryptocurrency markets, analysts see the Fed’s pause on QT as a potential catalyst for a renewed Bitcoin rally. During the tightening phase, liquidity dried up, making it difficult for risk assets like Bitcoin to maintain upward momentum. Now, with the Fed reversing course, new money could flow back into the market.

In essence, when the Fed stops pulling money out of the economy, investors often look for higher-yielding opportunities, and cryptocurrencies may become more attractive again.

### Bitcoin’s Current Struggles

Despite the Fed’s dovish turn, large investors appear hesitant to allocate capital back into Bitcoin just yet. The significant ETF outflows indicate caution, and the broader crypto market has struggled recently.

Bitcoin has declined roughly 10% over the past seven days and about 2.5% in the last 24 hours. Similarly, major altcoins have posted losses of up to 5% in the past day and even more over the week.

### Looking Ahead

While the immediate outlook may seem bearish, the combination of increased market liquidity and a potential return of capital into ETFs could quickly reverse the trend. If investors regain confidence, these factors have the potential to push cryptocurrency prices higher once again.

Stay tuned as the market reacts to evolving monetary policy and funding conditions in the weeks to come.
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