The U.S. Federal Reserve has officially ended its Quantitative Tightening (QT) program on December 1, closing a chapter that has drained liquidity from global financial markets for nearly three consecutive years. This structural shift removes one of the largest macroeconomic headwinds for risk assets — including cryptocurrencies.
Following this announcement, traders rapidly increased the probability of a rate cut at the December 9–10 FOMC meeting to nearly 90%, creating what many analysts describe as a short-term macro liquidity window for the crypto market. The central question now is simple: Can this window be strong enough to ignite a meaningful crypto recovery in December?
Fed Officially Ends Balance Sheet Reduction After Three Years
On October 29, the Federal Open Market Committee (FOMC) delivered a 25 basis-point rate cut, bringing the federal funds rate down to 3.75%–4.00%, while simultaneously confirming that asset reductions would stop on December 1.
In parallel, the New York Fed rolled over maturing Treasury debt and reinvested mortgage-backed security proceeds into short-term Treasury bills. As a result, the Fed’s balance sheet has declined from its $9 trillion peak in 2022 to approximately $6.6 trillion — a net contraction of nearly $2.2 trillion.
This transition has reignited expectations that liquidity conditions for risk assets could begin to stabilize or improve. The Fed’s November report also highlighted rising stress in money markets, reflected through higher repo rates and increased usage of the Standing Repo Facility — a clear sign policymakers are nearing the lower boundary of “ample reserves.”
Economists now broadly agree that the Fed has entered a “maintenance phase”:
Monetary conditions remain restrictive through interest rates
But balance sheet tightening has stopped — a move the market interprets as a soft form of easing
Powell Stays Silent as Rate-Cut Expectations Surge
On December 2, Fed Chair Jerome Powell appeared at Stanford University but avoided commenting on economic conditions or monetary policy, instead delivering a memorial speech for George Shultz — consistent with the traditional pre-FOMC blackout period.
After the October meeting, Powell emphasized that further rate cuts were not guaranteed, while acknowledging rising labor market risks — language the market interpreted as moderately dovish.
By late November:
Traders had already boosted the odds of another 25 bps cut from 30% to 80%
Recent macro signals have pushed that probability near 90%
If such a cut materializes, it could serve as a major catalyst for crypto market risk appetite.
Barclays analysts believe Powell will continue to support easing despite internal opposition from hawkish committee members, as November speeches reveal increasing internal division but a tilt toward accommodation.
Crypto Markets Closely Track Liquidity Injections and Cost Basis Levels
The end of QT has removed one of the most persistent liquidity drains from the crypto market. As QT concluded, the New York Fed conducted large-scale repo injections:
$13.5 billion overnight repo on December 1
An additional $25 billion earlier the same day
Historically, such operations have been strongly supportive for long-duration risk assets, especially Bitcoin.
According to Reuters, strategists expect the 10-year Treasury yield to drift toward the high-3% range, which would meaningfully reduce real yield pressure on non-yielding assets like Bitcoin.
Bitcoin responded positively, rising 2.4% to $88,365.99 at the time of writing. However, not all data looks encouraging.
Glassnode: Bitcoin Still Trading Below Critical Short-Term Cost Basis
According to Glassnode’s November 26 report, Bitcoin remains locked in a $81,000–$89,000 range after losing a key short-term cost basis.
Short-term holder cost basis: ~$104,600
BTC price remains far below this level
Realized losses now average $403.4 million per day (30-day SMA)
Short-term holder profit/loss ratio has collapsed to 0.07x, confirming liquidity exhaustion after strong Q2–Q3 demand
Meanwhile:
Long-term holder profit ratio remains at 408x, still far above historic bear-market bottoms
Long-term investors are still taking profits, not capitulating
However, if this ratio compresses toward 10x or lower, the probability of a deep crypto bear cycle will rise sharply.
Derivatives Market Signals Defensive Positioning
On the derivatives side:
Futures open interest has declined alongside price, removing excess leverage from previous rallies
Deleveraging occurred in an orderly manner, with minimal forced liquidations — a sign of controlled risk reduction
Perpetual funding rates remain neutral, signaling a shift away from speculative extremes toward equilibrium
Meanwhile, options open interest has surged to record highs denominated in BTC, though it remains below the late-October peak when BTC traded near $110,000.
Strike distribution reveals:
Heavy put concentration near $84,000
Expanding call interest around $100,000
Market makers currently sit:
Short gamma on puts
Long gamma on calls
This structure implies limited upside acceleration near-term, while downside risk has not been fully neutralized.
Short-term option skew has fallen sharply:
From 18.5% to 9.3% in one week, reducing the risk of an immediate crash
However, 6-month skew has nearly doubled, signaling growing concern over a prolonged downturn into 2026
The End of QT Revives the “Fed Put” Narrative
Ending QT officially marks the end of multi-year systemic liquidity withdrawal. The Fed now allows:
Interest rates to act as the primary policy tool
While keeping the balance sheet stable
The decision to halt balance sheet contraction in response to repo stress reinforces the perception that the Fed is willing to intervene preemptively before liquidity conditions deteriorate further — reviving confidence in the so-called “Fed Put.”
December Recovery Scenario for Crypto
The December recovery thesis for crypto now rests on:
✅ Easier USD liquidity
✅ Lower real yields
✅ Continued ETF demand and institutional inflows
✅ Reduced structural liquidity drag from QT
⚠️ Key Risk:
If the Fed unexpectedly refuses to cut rates or delivers a hawkish forward path, Bitcoin could experience violent downside volatility.
The macro stage is now set.
Bitcoin must reclaim the critical $104,000 cost-basis level to truly unlock a sustained December recovery.
Final Verdict
December presents one of the most complex and high-stakes macro setups of the entire cycle. Liquidity conditions are improving, but price structure and capital flow data remain fragile. Bitcoin now stands at a macro inflection point — where Fed policy, bond yields, ETF flows, and derivatives positioning collide.
The opportunity for recovery is real.
So is the risk of disappointment.
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