Why the Crypto Market Isn’t Rallying Despite the Fed’s $37 Billion Liquidity Injection

The Federal Reserve’s recent injection of an estimated $37 billion into the U.S. banking system through repo operations was expected to fuel a risk-on rally in financial markets. However, the cryptocurrency sector has bucked the trend, plunging into “extreme fear” territory amid a 6.11% monthly decline in total market capitalization. Liquidity injections typically boost asset prices, but several factors are holding crypto back from upside momentum.

The Fed’s $37 Billion Injection: What It Means for Markets

The Fed’s repo operations, designed to address short-term funding pressures, pumped $37 billion into the system since last Friday—the largest single-day move since the dot-com era. This liquidity boost aims to stabilize rates and ease collateral shortages, often spilling over into risk assets like stocks and crypto. Yet, despite the increased liquidity, crypto’s response has been muted, with major assets like Bitcoin dropping below $107,000 and Ethereum struggling near $4,000. The disconnect raises questions about why the injection isn’t translating to crypto upside.

Crypto Sentiment Plunges to “Extreme Fear”

The Crypto Fear & Greed Index has sunk to “extreme fear” levels, reflecting heightened volatility and investor caution. This sentiment shift coincides with a broader market pullback, where liquidity appears to be bypassing crypto in favor of traditional assets. The index, tracking volatility, social media buzz, and dominance metrics, hit lows not seen since major corrections, signaling that even Fed support isn’t enough to stem the tide of fear-driven selling.

Reverse Repos Offset Liquidity Gains

A key culprit is the Fed’s reverse repo facility, which has absorbed $1.2 trillion in liquidity since its peak, effectively countering the $37 billion injection. Banks and money market funds parking excess funds in reverse repos drain available liquidity, creating a “liquidity trap” where injections fail to reach risk assets like crypto. This offsetting dynamic, coupled with rising Treasury yields and policy uncertainty, has left the market questioning the true impact of the Fed’s moves.

2025 Crypto Market Prediction: $3T-$4T Cap Recovery

Crypto market prediction for 2025 remains optimistic, forecasting a rebound to $3-4 trillion total cap by year-end. Analysts see liquidity rebound as a catalyst for upside, with Bitcoin targeting $130K-$200K. Changelly projects $123,849 for BTC; CoinDCX $131,500. VanEck eyes $180K-$200K on ETF momentum. Bull drivers: Institutional inflows; bear risks: Liquidity traps testing $2.5T support.

For investors, how to buy Bitcoin via compliant platforms ensures secure entry. How to sell Bitcoin and how to cash out Bitcoin offer liquidity options. Sell Bitcoin for cash and convert Bitcoin to cash facilitate fiat conversions.

Trading Strategy: Liquidity-Aware Longs

Short-term: Long BTC above $107,000 targeting $110,000, stop $105,000 (1.9% risk). Swing: Accumulate dips, staking for 5% APY. Watch reverse repo data; below $105,000, exit.

In summary, the Fed’s $37 billion liquidity injection fails to rally crypto due to reverse repo offsets and fear sentiment, but $3T-$4T cap recovery signals 2025’s rebound potential.