U.S. Federal Reserve to Inject $55B in Liquidity, Boosting Crypto Market Optimism

The U.S. Federal Reserve is set to make another round of Treasury bill purchases as it expands its balance sheet again. This has sparked optimism about a crypto market rally, as this move could inject more liquidity into the economy.

Federal Reserve To Buy $55 Billion Worth Of Treasury Bills

The New York Fed will begin buying Treasury bills next week, January 20, and will purchase up to $55 billion in these treasuries between then and February 10. This move comes as part of the Fed’s plans to expand its balance sheet through reserve management purchases.

As CoinGape reported, the Federal Reserve ended quantitative tightening (QT) at the December FOMC meeting and committed to purchasing treasury bills. The Fed notably just completed $40 billion in reserve management purchases, which it began in December after the meeting.

The upcoming $55 billion in treasury bill purchases has sparked optimism about a potential crypto market rally. The purchases come at a time when the market is seeing renewed bullish momentum, with Bitcoin reaching a new yearly high above $97,000 earlier this week.

Crypto commentator Crypto Rover noted in an X post that the U.S. Federal Reserve’s move is bullish for the market in the long term. This could lead to higher crypto prices as dollar liquidity increases, as BitMEX co-founder Arthur Hayes has predicted.

Meanwhile, it is worth noting that the Fed’s purchases of the treasuries will come amid the upcoming FOMC meeting, where the committee is likely to keep interest rates steady. There is currently a 95.6% chance that the FOMC will hold rates steady and 4.4% chance they will lower rates by 25 basis points (bps), according to CME FedWatch data.

Why The Treasury Purchases Are Not Bullish In The Short Term

In an X post, macro commentator Milk Road Macro explained why the Federal Reserve’s treasury purchases are not bullish for the crypto market in the short term. Milk Road Macro noted that the Fed balance sheet is expanding but rising at an “extremely slow pace.”

The commentator further remarked that while each reserve management purchase is a liquidity-positive event, it is too small to move risk assets such as Bitcoin on its own. They predict that this balance sheet expansion is likely to remain gradual unless there is a “true shock” to the system.

Milk Road Macro also noted that the current type of balance sheet expansion is different, as the Federal Reserve is buying Treasury bills rather than coupons. Buying treasury coupons usually leads to faster expansion, which is more akin to quantitative easing and is more bullish for the crypto market.