Key Takeaways:
-
Federal reserve balance limits and possible repo operations point to improving liquidity conditions that could boost bitcoin and other risk assets.
-
Fiscal and sector weakness currently weigh on markets, but the avoidance of tariffs and a targeted stimulus plan could support a recovery in crypto demand.
Bitcoin (BTC) and the broader crypto market may remain under pressure ahead of the US federal reserve’s upcoming interest rate decision on December 10.
Traders are divided between a 0.25% cut and keeping rates steady at 4%, based on implied odds in government bond markets. More cautious Fed members argue that US President Donald Trump’s tariffs have added to inflationary pressure, reducing room to ease rates and support growth. At the same time, the US job market is showing clear signs of cooling, according to in reports from BlackRock.
Blaming Bitcoin’s weakness solely on the Fed appears to have been misguided
Concerns with sticky inflation are regularly cited by FED officials. “I am concerned that tighter monetary policy is weighing on the economy, particularly with regard to how it affects lower- and middle-income consumers,” Fed Governor Christopher Waller said on Monday. Waller dismissed rumors that the missing official data, resulting from the government shutdown, had hurt the Fed’s visibility.
However, blaming Bitcoin’s weakness solely on the Fed seems inaccurate, given that the downtrend began in early October. US import tariffs helped narrow the monthly government deficit, and the Fed’s balance sheet continued to shrink, causing the US dollar to strengthen against a basket of major currencies. Historically, Bitcoin has held an inverse correlation with the dollar index (DXY).
Determining the exact trigger behind Bitcoin’s weakness since October 6 the entire time is almost impossible. Financial conditions worsened as freight activity slowed, housing markets softened, and companies faced lighter cash flows, according to a bullish fund. report. As a result, Bitcoin’s decline may stem more from broad risk aversion than dollar strength alone.
The Fed has signaled that it will no longer allow assets under management to fall below the current $6.5 trillion, starting in December. This transition can be offset by launching the Repurchase agreement (Repo) operation. In practice, the Fed’s balance sheet remains unchanged while cash is injected into the financial markets, avoiding liquidity concerns by adding reserves to banks.
Meanwhile, Trump has tasked US Treasury Secretary Scott Bessent with Prepare a stimulus campaign Exposure to low-income households for early 2026, and import tariffs may be gradually reduced to lower inflation risks. However, fiscal conditions have worsened in 2026 as a major welfare Bill Act is underway.
Bitcoin could bounce back strongly as liquidity returns
As the year begins, there should be less uncertainty in the economic outlook, for better or worse. Currently, weaknesses are evident in the real estate and auto sectors, both of which are putting up significant gains Pressure on regional banks. Bitcoin and other riskier assets have reacted defensively, but they stand to benefit the moment liquidity returns.
Related: Bitcoin Charts Flag $75k Bottom, but analysts predict 40% rally before 2025 ends
Bitcoin is not a hostage to US monetary policy, especially in a weak job market. The Fed has limited room to act while Fiscal conditions remain tightleaving expansion steps as its fallback. Over time, liquidity is expected to return to the markets, helping to mitigate a sharper impact on the economy and creating a more favorable environment for a strong rally in distressed assets.
This article is for general informational purposes and is not intended to be and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
