The US Federal Reserve's recent start of a $40 billion Treasury bond purchase, a form of quantitative easing (QE), should typically drive crypto prices. Surprisingly, the response this time is subdued. To unravel this paradox, a closer look at the specifics reveals it's not the QE you might think.
The first reason for this lack of euphoria among cryptos is a question of scale and monetary nature. The current program of $40 billion per month is a drop in the ocean compared to the $800 billion per month injected during the 2020 QE.
Moreover, currently, the Fed is buying Treasury Bills (short-term government securities), which provides short-term liquidity, a far less powerful effect than purchasing Treasury Coupons (long-term bonds) that characterizes true explosive QE.
Analyst Andreas Steno humorously compares this QE to an Uber QE rather than a “Lambo QE.”
Beyond quantity, it’s the quality of intervention that has changed. Macroeconomic expert Jeff Park speaks of a new era: that of Qualitative Easing. The objective is no longer to flood the market with liquidity, but to change the “quality” of money held by banks.
By repurchasing Treasury Bills, the Fed replaces them with bank reserves, considered “perfect money.” This mechanism, although technical, has a concrete effect: it frees up capacity on banks’ balance sheets, allowing them to take more risks and increase leverage. It’s a stimulus, but it’s indirect and takes time to spread through the real economy and risky assets like cryptos.
This is why risky assets take a back seat and the market still seems to be in a wait-and-see mode, lacking clear signals.
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Unlike the 2020 QE, which was a direct response to a crisis, the current program is presented as a technical “reserve management” operation. The impact is therefore more psychological and behavioral than immediate.
It’s not a monetary airdrop that pours money directly into investors’ pockets, but rather an adjustment to the plumbing of the financial system. Moreover, the global macroeconomic context, particularly concerns about rising interest rates in Japan, weighs on sentiment and counteracts the positive effects of this mini-QE.
So, should we despair of seeing cryptos explode? Not necessarily. The launch of this QE, even slow and qualitative, is a signal that the Fed is ready to support liquidity. However, investors must understand that the era of explosive QE is over, at least for now. The impact of this new easing will be slower, more subtle, and more dependent on bank behavior. Cryptocurrencies could benefit in the long run, but those expecting a repeat of the 2020 frenzy will need to be patient. The bull run engine is warming up, but it’s still far from running at full throttle.
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Charles Ledoux is a Bitcoin and blockchain technology specialist. A graduate of the Crypto Academy, he has been a Bitcoin miner for over a year. He has written numerous masterclasses to educate newcomers to the industry and has authored over 2,000 articles on cryptocurrency. Now, he aims to share his passion for crypto through his articles for InvestX.
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