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The U.S. Federal Reserve’s recent pivot from quantitative tightening to quantitative easing could significantly influence Bitcoin’s market trajectory in 2025.
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As the Fed injects liquidity into the U.S. economy, Bitcoin stands poised to harness this influx, yet long-term holders continue to liquidate their positions, creating a complex market dynamic.
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According to crypto analyst Chicken Genius, “Quantitative tightening (QT) ends this quarter,” suggesting an evolving economic landscape that could further impact Bitcoin’s price.
This article explores how the Fed’s shift to quantitative easing may impact Bitcoin’s growth in 2025, amidst ongoing sell-offs by long-term holders.
Will U.S. Liquidity Injection Pump BTC?
The recent injection of $400 billion into U.S. market liquidity is a major shift signaling a potential bullish trend for Bitcoin. This strategy, indicated by the Fed’s Reverse Repo Facility operation, mirrors historical trends that led to substantial Bitcoin price increases. In 2021, similar actions contributed to an impressive uptrend in BTC, suggesting that as long as liquidity remains ample, Bitcoin could mirror past performance.
Historically, the correlation between Repo Facility increases and Bitcoin price surges has been noted, and many analysts anticipate that continued Fed liquidity injections will push BTC to new heights, potentially exceeding previous all-time highs.
Short-term Holder Activity Amidst Long-term Sell-offs
Another critical dimension to this narrative is the significant activity amongst short-term holders (STH). As long-term holders dump their assets, STHs are stepping in to absorb the influx. Since mid-September 2024, long-term holder supply has plummeted from 14.2 million BTC to approximately 13.1 million BTC by early January 2025, showcasing a remarkable sell-off rate.
In contrast, STH supply has surged dramatically, jumping from 2.5 million BTC to 3.8 million BTC during the same timeframe. This shift indicates that while long-term investors are exiting the market, new entrants are taking advantage of the price fluctuations, creating an intriguing mix of market expectations.
Price Dynamics and Market Structure
As of the latest market analysis, Bitcoin is attempting to reclaim the $95K mark. If it successfully closes above $97K, the higher timeframe market structure could tilt bullish, pivoting favorable sentiment towards the cryptocurrency.
However, failing to sustain above $97K may lead to further declines, potentially testing key support levels at the 100-day Exponential Moving Average (EMA) around $93K or a critical demand zone at $90K.
Conclusion
As the Federal Reserve’s actions unfold, Bitcoin’s trajectory will largely depend on the balance between liquidity injections and the ongoing market selling pressure from long-term holders. The interplay between these factors could define whether Bitcoin challenges new highs or retreats to lower support levels. Investors should stay attuned to these developments, as they hold the potential to reshape the cryptocurrency landscape significantly.
