Fed's Quantitative Tightening Officially Ends! Will a $13.5 Billion Injection Ignite a Bitcoin Frenzy?

The US Federal Reserve officially ended quantitative tightening (QT) on December 1, marking a significant shift in US monetary policy. The Fed injected $13.5 billion into the banking system via overnight repurchase agreements, the second-largest single-day liquidity operation since COVID. According to Fundstrat’s Tom Lee, the Fed’s decision to stop quantitative tightening will be a turning point for the cryptocurrency market; last time QT ended, the market surged about 17% within three weeks.

Fed Officially Ends $2.4 Trillion Quantitative Tightening Cycle

The Federal Reserve officially stopped its quantitative tightening program on December 1, 2025. This decision came after the central bank withdrew about $2.4 trillion from the financial system since the tightening cycle began in June 2022. Quantitative tightening (QT) is the opposite of quantitative easing (QE): the central bank reduces its holdings of Treasuries and mortgage-backed securities, pulling liquidity from the market to combat inflation and curb asset bubbles.

The Fed has suspended its QT program, ceasing reductions in Treasuries and mortgage-backed securities to maintain adequate bank reserves. The timing is notable, as global financial markets are experiencing significant turbulence. The Fed’s balance sheet shrank from a peak of about $9 trillion in April 2022 to around $6.6 trillion now, a cumulative reduction of $2.4 trillion. This scale of liquidity withdrawal is second only to the 2017-2019 QT cycle in history.

The end of QT means the Fed will no longer actively drain liquidity from the market, providing a more stable funding environment for financial markets. For risk assets, this is typically seen as a bullish signal, as marginal improvement in liquidity often drives increased risk appetite among investors. However, this does not mean the Fed is turning dovish; rather, it is shifting from “active tightening” to a “neutral wait-and-see” stance.

On the same day, under pressures such as year-end tax payments, banks submitted $13.5 billion in Treasuries for overnight repo, the second highest since 2020. This number itself reflects strong demand for short-term liquidity. Overnight repurchase agreements (Overnight Repo) are tools for the Fed to provide short-term liquidity to banks. When banks face temporary funding shortages, they can pledge Treasuries to the Fed in exchange for cash. The $13.5 billion scale indicates tight year-end funding, but the Fed’s timely response averted a liquidity crisis.

Tom Lee: History Shows Markets Soar 17% Three Weeks After QT Ends

Fundstrat’s Tom Lee stated that the Fed’s decision to stop QT will be a turning point for the cryptocurrency market. Lee pointed out that the last time the Fed ended QT, the market rose about 17% within three weeks. This historical pattern provides important reference for the current market, and while history doesn’t repeat exactly, it often rhymes.

The last time the Fed ended QT was in July 2019, when it announced the halt about a year after balance sheet reduction began. In the following three weeks, the S&P 500 rose about 5%, and Bitcoin surged more than 17% in the same period, showing risk assets are highly sensitive to marginal liquidity improvement. This rally wasn’t driven by a sudden fundamental improvement, but rather by markets’ anticipatory response to the changing liquidity environment.

Lee also believes this shift is especially important for Bitcoin, as improved liquidity has historically supported stronger performance in risk assets. As a high-risk asset, Bitcoin’s price trends are highly correlated with global liquidity conditions. When central banks stop draining liquidity, even without injecting new funds, just halting the withdrawals can improve marginal liquidity and boost investors’ risk appetite.

He expects market conditions to continue improving through year-end and predicts Bitcoin could hit a new all-time high by the end of January. This forecast is based on several factors: the end of QT, expected rate cuts in December, and seasonal year-end reallocation of funds. If these factors coincide, they could provide strong upward momentum for Bitcoin.

Three Major Market Impacts of QT Ending

Improved Liquidity Environment: The Fed stops draining funds from the market, making marginal liquidity neutral or even loose.

Increased Risk Appetite: Investors are no longer concerned about ongoing liquidity tightening and are willing to increase risk asset allocations.

Valuation Reassessment: Discount rates for risk assets fall, raising theoretical valuations.

However, markets remained calm, with stocks posting modest gains, and policy has not shifted to accommodative. While some see signs of market stress and others focus on bullish signals from assets like Bitcoin, the Fed’s actions are more of a technical adjustment than a policy shift. Reserves remain above $3 trillion, indicating the financial system is gradually normalizing post-pandemic—not facing a liquidity crisis.

BOJ Rate Hike Shadow: A Hedge for the End of QT

After the end of QT, all eyes are on the Fed’s expected rate cut at the December FOMC meeting. On the other hand, market analyst Ted Pillows pointed out that the probability of the Bank of Japan (BOJ) hiking rates at its December meeting has risen to 81%. This warning pours cold water on market optimism.

The BOJ has raised rates three times in this tightening cycle: March 2024, July 2024, and most recently in January 2025. Pillows emphasized that after each hike, Bitcoin and the broader crypto market experienced massive sell-offs. This correlation stems from the unwinding of the Yen Carry Trade.

The Yen Carry Trade is a key mechanism in global financial markets. When Japan maintains ultra-low rates, investors borrow cheap yen, convert to dollars or other currencies, and invest in high-yielding assets (including crypto). However, when the BOJ hikes rates, the cost of yen borrowing rises, forcing these trades to unwind and causing large outflows from risk asset markets. The BOJ’s July 2024 rate hike triggered a single-day Bitcoin plunge of over 15%.

An 81% rate hike probability means markets highly expect the BOJ to take action in December. If this materializes, it could partially or even fully offset the positive impact of the Fed ending QT. Global liquidity is a complex system: the Fed stopping tightening is bullish, but BOJ tightening is bearish, and the net effect depends on scale and timing.

From a technical analysis perspective, markets remain cautious as they observe this tug-of-war. Although Bitcoin briefly rebounded after the QT ending news, there was no explosive rally, indicating traders’ concerns about the BOJ hike are dampening bullish enthusiasm. This cautious attitude is also reflected in the derivatives market, where futures premiums and options skew show skepticism about further upside.

$3 Trillion in Reserves Signal Financial System Normalization

Reserves remain above $3 trillion, indicating the financial system is gradually returning to normal post-pandemic. This figure is far higher than the pre-pandemic level of about $1.5 trillion in 2019, meaning the banking system still has ample liquidity buffers. The Fed’s decision to end QT is partly to avoid reserves falling too low and triggering a repo market crisis similar to September 2019.

In September 2019, due to insufficient reserves and factors like corporate tax payments, overnight repo rates spiked to 10%, forcing the Fed to intervene urgently. This experience taught the Fed that the banking system needs to keep reserves sufficiently high to ensure smooth money market operations. The $3 trillion in reserves provide a strong safety margin, allowing the Fed to stop QT without causing market turmoil.

However, markets remained calm, with stocks making modest gains and policy not turning accommodative. This muted reaction shows investors had fully priced in the end of QT and did not interpret it as a major bullish catalyst. Instead, the market is more focused on when the Fed might shift from “stop tightening” to “active easing,” i.e., restarting quantitative easing (QE). Only when the Fed resumes asset purchases and expands its balance sheet will substantial liquidity truly be released.

For the crypto market, the end of QT is a positive signal but not a decisive catalyst. Bitcoin and other risk assets need not just an end to tightening, but real increases in liquidity. Therefore, markets will closely watch the December 10 FOMC meeting: if the Fed cuts rates as expected and sends dovish signals, combined with the end of QT, it could provide a dual boost to drive crypto markets higher.