Analysts say Fed liquidity shift could reshape crypto markets: Here's why

Market analysts expect the Fed to introduce liquidity measures in 2026 that could change the crypto market. James E. Thorne, chief market strategist at Wellington Altus, predicts the Fed will begin purchasing about $25 billion a month, likely starting in early 2026, and maintaining the pace for at least six months to stabilize reserve balances.

“Please don't call this quantitative easing,” the strategist said. He distinguished the expected measures from traditional quantitative easing programs. The purchases are aimed at addressing funding pressures in financial markets as the end of the year approaches.

Concerns about funding crisis grow

Macro investor Raul Pal suggests the Fed will be forced to adjust the market plumbing this week to avoid a month-end and year-end funding crisis. “Cryptocurrencies are currently trading like a stressed financing vehicle, reflecting a broken plumbing system, while equities have so far been cushioned by share buybacks and performance-seeking,” Pal said.

The investor warned that if the situation is not resolved immediately, the stock risks a repeat of the 2018-2019 situation. The Fed met with banks and the New York Fed to understand why the standing repo facility has not been fully utilized to resolve funding pressures. “The market and the Fed are becoming increasingly anxious,” Pal said.

The larger battle involves the Treasury seeking control of liquidity through banks to increase lending to Main Street, competing with the Fed's quantitative easing approach. This allows fiscal and monetary policy to align with the goal of stimulating targets on Main Street while Wall Street benefits from subsidence and increases the value of collateral.

“Quantitative easing doesn't affect Main Street. Liquidity management is now a political game, not a monetary policy game. At the end of the day, it all comes down to the Everything Code and the economic gravity of debt service, but politically it's done in a way that doesn't hurt Main Street too much,” Pal explained.

Technical fixes under consideration

Pal identified the change in the additional leverage ratio as a key amendment, which has become more urgent as a key resource to finance deficits and increase future liquidity. The timing for increased communication around eSLR changes remains unclear, but an interim fix via repository or standing repository functionality appears imminent.

“You can hear the sound of cowbells in the distance rapidly getting louder and getting closer. This will start a cycle extension in 2026 as $7 trillion in interest payments need to be repaid,” Pal said.

Analysts expect volatility to rise until funding pressures ease. Cryptocurrency markets have been trading with increased sensitivity to these liquidity conditions during this period, acting more as a stressful financing vehicle than a risk asset. Whether the Fed's anticipated liquidity measures will stabilize the cryptocurrency market or create new distortions will depend on the details of implementation and market reception.

Related: https://coinedition.com/bitcoin-price-test-volatile-week-macro-breakdown-vs-on-chain-accumulation/