QT Has Stopped, QE Awaits: As Liquidity Cycle Turns Downward, Where Will Crypto Markets Head

The Federal Reserve officially ceased its balance sheet reduction operations on December 1, 2025—this seemingly simple policy adjustment actually marks a profound turning point in the global liquidity environment. Moving from “tightening” to “easing,” the Fed has quietly shifted direction, and when QE (quantitative easing) is initiated will determine the asset price trends over the next two years.

As of March 2026, Bitcoin is priced at $70.27K, down 5.14% in 24 hours; Ethereum is at $2.17K, down 6.56%. Facing the shift in liquidity policy, the real test for the crypto market has just begun.

Fed Policy Turning Point: The Liquidity Logic Behind Stopping QT

What does stopping QT mean? Simply put, QT (quantitative tightening) involves the Fed ceasing to reinvest maturing assets and actively shrinking its balance sheet to withdraw liquidity from the market. Over the past two years, the Fed has used this tool to combat inflation.

On December 1, 2025, the Fed announced it would stop reducing its holdings of up to $50 billion in Treasury securities and $35 billion in MBS each month, instead reinvesting maturing MBS income into Treasury bonds.

Official statements sound calm, but market understanding is quite different: The Fed has acknowledged that system reserves are “close to the lower limit.” The significance of this signal is that it marks the end of the “draining” era, and the dawn of the “liquidity injection” era is already upon us.

Meanwhile, at the October meeting, the Fed cut interest rates by 25 basis points, lowering the federal funds rate to a range of 3.75%-4.00%, with the reserve rate lowered to 3.90%. Powell stated that future policy paths depend on inflation and employment data, effectively leaving room for more easing in the future.

Why Did the Market React Oppositely to Rate Cuts?

This is the most counterintuitive phenomenon of the year: positive policy signals led to collective weakness in the crypto market.

Most people’s intuition is—rate cuts should stimulate risk assets. But reality shows it’s more complex:

Market Pre-Discounting: As early as September, markets had already priced in a rate cut in October. When the news actually arrived, it became “old news,” triggering profit-taking.

Weak Fundamentals Overshadow Rate Benefits: Uncertain corporate earnings outlooks, weak employment data, and concerns about whether the economy can land softly mean that, without fundamental improvements, rate cuts alone are insufficient to change expectations.

Concerns Over Policy Reversals: Rate cuts could reignite inflation expectations. If inflation data worsens, the Fed might tighten again, adding policy uncertainty. Markets remain cautious.

Capital Flows to Safe Assets: Rising global risk aversion leads to funds flowing back into government bonds and USD cash, suppressing risk assets.

Therefore, rate cuts are not necessarily a short-term rally trigger; more like the start of a “marathon”—a genuine liquidity recovery requires clearer policy signals.

Stopping QT, When Will QE Resound?

Ceasing QT is just the first step, but it opens the policy space for QE.

Let’s clarify the difference:

QT (Quantitative Tightening): The Fed stops reinvesting maturing assets and actively shrinks its balance sheet, withdrawing liquidity.

QE (Quantitative Easing): The Fed actively purchases Treasuries and MBS, injecting reserves into the banking system, “printing money.”

Stopping QT ≠ QE, but it indicates that liquidity conditions are shifting from “contraction” to “balance.” The Fed’s balance sheet has shrunk from a peak of $9 trillion to about $6.7 trillion, with bank reserves around $3 trillion.

In the current economic context, what triggers QE? Historical experience suggests QE will restart when:

• Significant liquidity crises occur in financial markets
• The economy enters recession with rising unemployment
• Credit markets freeze

None of these conditions are fully met yet, but the policy channels are open. If any indicator worsens, QE could be rapidly reactivated.

Historical Reflection: How the Last Easing Cycle Ignited the Crypto Boom

After the pandemic outbreak in 2020, the Fed launched unlimited QE. Its balance sheet expanded from $4.1 trillion to $9 trillion, an increase of nearly $5 trillion.

During this liquidity flood, crypto assets performed astonishingly:

• Bitcoin: Market cap surged from $100 billion to over $1.2 trillion, a 12-fold increase
• Ethereum: Market cap from $10 billion to over $500 billion, a 50-fold increase
• Entire crypto market: From under $300 billion to over $3 trillion

Data shows that during QE, roughly 2-3 cents of every dollar of liquidity released eventually flowed into crypto markets. This is not coincidence but a market rule: liquidity tends to flow into high-risk, high-return assets.

Timeline review:

• March 2020: Fed announces unlimited QE → Market shifts from panic to easing expectations
• April 2020 - March 2021: Continuous QE operations → Liquidity keeps expanding
• Mid-2021: Bitcoin hits all-time high, ETH surpasses $500 billion
• End of 2021: Fed signals balance sheet reduction → Crypto market peaks

This cycle teaches us profoundly: The turning point of liquidity is the turning point of risk assets.

If QE Reinitiates, How Much Liquidity Will the Market Receive?

Based on historical Fed actions, we can forecast three scenarios for QE restart:

In the moderate scenario (most likely), about $1.2 trillion of liquidity would be added annually.

Assuming 1%-5% flows into crypto (far below the 2020-2021 ratio), that’s $12-60 billion of incremental funds. With Bitcoin’s current circulating market cap of $1.4 trillion, such a scale could push prices higher again.

Historical logic suggests that if BTC rises from current $70K to higher levels, $100K–$150K is a reasonable mid-term target. In extreme liquidity scenarios, $200K or higher is possible—provided QE reaches 2020 levels and crypto absorbs a larger share.

Outlook for Crypto Markets After Liquidity Re-Expansion

While stopping QT is a fact, QE’s restart remains to be seen. But the policy pace indicates that the Fed has paved the way:

Short-term (3-6 months): Observation period. The Fed will adjust based on economic data; market volatility persists.

Mid-term (6-12 months): If recession signals or financial risks increase, the probability of QE rises sharply, creating a key opportunity window for crypto assets.

Long-term (12-24 months): Liquidity environment becomes broadly easing again, likely ushering in a new wave of risk asset rallies. Historical cycles show main cryptocurrencies like BTC and ETH often lead these upward trends.

Crypto markets are not a foolproof safe haven, but they are always the “first responders” to liquidity floods—when capital costs fall and reserves are ample, they tend to be the first high-risk assets to be chased.

Key Time Windows and Investment Insights

Summary: Stopping QT means “no more draining,” while QE signals “start of money printing”—the Fed has turned the tap on, only waiting for the moment to fully open it.

Current market conditions resemble the night before March 2020—policy shifts are widely accepted, but real liquidity recovery still needs time to brew. For crypto participants, understanding the policy rhythm is more important than blindly chasing highs.

QE is not imminent but also not far off. Stopping QT is just the prelude; the main movement is yet to come. When liquidity flows freely again, the asset landscape could be fundamentally reshaped—but patience is required to reach that point.

Deep observation · Independent thinking · Value beyond price.

Disclaimer: The views expressed in this article reflect personal market perceptions and do not constitute investment advice. Investment decisions should be based on individual risk tolerance and thorough research.