Bitcoin Suddenly Braced For $6.6 Trillion Fed Price Flip

Bitcoin has stabilized after a rocky few days, with a bullish intervention by Tesla billionaire Elon Musk taking the market by surprise.

The bitcoin price is trading around $112,000 per bitcoin after looking at risk of plummeting under $110,000 yesterday—even as a serious bitcoin price warning light flashes red.

Now, after the bitcoin price “flash crash” triggered a stark BlackRock warning, Federal Reserve chair Jerome Powell has said the Fed is fast approaching a point when it can end its quantitative tightening balance sheet reduction program.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in prepared remarks for his speech at the National Association for Business Economics conference in Philadelphia, it was reported by CNBC, while also opening the door to further interest rate cuts.

“We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”

The Fed’s quantitative tightening program, which began in 2022, has reduced the Fed’s balance sheet to $6.6 trillion, from around $9 trillion at its peak.

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“Powell delivered a speech in which he expressed concern over the recent deterioration in the U.S. labour market,” David Morrison, senior market analyst at Trade Nation, said in emailed comments.

“This is now the focus for the Fed, taking over from inflation which continues to be well above the U.S. central bank’s 2% target rate. The markets continue to factor in the likelihood of two 25 basis point rate cuts before the year-end. But Powell concentrated on quantitative tightening, whereby the Fed reduces its balance sheet. The balance sheet grew to unprecedented levels during the Great Financial Crisis, with more added amidst the Covid panic. The Fed has been gently reducing its balance sheet, thereby tightening monetary policy. Powell suggested that this reduction programme may soon be wound down.”

The winding down of the quantitative tightening program comes as the Fed is widely expected to cut interest rates again at its Federal Open Markets Committee (FOMC) meeting later this month and bitcoin exchange-traded funds (ETFs) have rocketed to record levels as Wall Street financial institutions pile in.

“This institutional firepower, combined with the Federal Reserve’s dovish stance following September’s rate cut and ongoing macroeconomic uncertainties including the U.S. government shutdown, reinforced bitcoin’s emerging role as a digital hedge alongside gold, which itself broke through the $4,000 per ounce barrier [last] week,” Gadi Chait, head of investment at Xapo Bank, said via email.

“As we progress through ‘Uptober,’ it will be interesting to see if we make any meaningful move higher. Fed policy developments at the October 28-29 FOMC meeting may be a catalyst for a move that can either extend the rally, or trigger healthy consolidation.”