Bitcoin Surges 182% as Fed Shrinks Balance Sheet

Since the U.S. Federal Reserve began reducing its balance sheet, the BTC price has surged by a huge 182%! This clearly indicates that it’s a direct proportion and sensitive to US tariffs and monetary policies! Debates rose in the past about the discussion between the Federal Reserve. This urges the investors to wonder about the market response in the future when the Fed switches back to expansionary policies. Currently, Bitcoin is trading at 124,000. Let’s discuss and look deeper into this perspective.

Fed Balance Sheet and Bitcoin’s Growth

In 2020 and 2021, the Federal Reserve added more to its balance sheet than it has ever added before and has injected trillions of dollars of liquidity into the economy. This growth saw Bitcoin rise to record highs of less than $10,000. The Fed’s balance sheet reached almost $39 trillion of assets at its peak, and the value of Bitcoin also rose. The Fed has since begun to reduce its balance sheet by a process called quantitative tightening. Bitcoin has made a melodramatic recovery, however, surging over 180 percent since its cycle lows despite this contraction. Analysts believe that this strength reflects future relaxation expectations in the market and the further institutionalization of Bitcoin.

Liquidity Metrics Show Strong Correlation

Source: Checkonchain

Let’s look at the data points connecting the graph to the US Federal Reserve:

• There is a high correlation between Liquidity Metrics.
• There is a high correlation between U.S. liquidity and Bitcoin, as the values in the background of the post by Rover indicate:
• Total Liquidity ($9T): According to the current data, the total U.S. liquidity is around 9 trillion as Bitcoin skyrockets to $124,000.
• Reverse Repo and Treasury General Account (TGA): Reverse Repo and Treasury instruments to sell or buy liquidity were not stable in 202122 and fell. When these levels stabilized, Bitcoin started its recent boom.
• Fed Contraction vs. Bitcoin Pump: Balance sheet contractions put pressure on risk assets generally. Which is why bitcoin has risen by a sharp 182% over this time frame. This indicates that it is receiving a special treatment as an inflation hedge asset.

What’s Next?

Bitcoin is no doubt an evolving asset in global finance from a definitely broader perspective. It is no longer viewed as a speculative asset and has been evolving ever since! The direct correlations of the Bitcoin price tag with the US Fed increase the demand even more. As central banks face increasing pressure to balance inflation and economic growth, Bitcoin’s dynamics going forward could again be mirrored in the liquidity cycles of the global financial system.