The Fed Announces QT Will End in December

Hey everyone and thanks for jumping back

into the macroverse.

Today we're going to be talking about

the recent FOMC and how the Federal

Reserve has announced that quantitative

tightening will be ending on December

1st. If you guys like the content, make

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Let's go ahead and jump in. So, the

Federal Reserve just had their most

recent meeting, the FOMC, and during it,

they obviously announced that they would

be reducing interest rates to 4%. If you

go over to the watch tool here, you can

see that the Fed essentially reduced

rates to 4%. But really what was more

interesting is that Powell really pushed

back on the idea of a rate cut in

December basically saying you know what

it's not it's not a foregone conclusion

and so previously the expectation of a

rate cut in December was more than 90%.

If you go look at say the probabilities

or you go compare to prior months for

the month of December, you can see that

right now there's a 31% chance they're

going to keep rates constant. Whereas

just a day ago there was only a 3%

chance they were going to keep rates

unchanged.

So the argument is that Pal really

didn't like the idea that markets were

already thinking that a rate cut in

December was a foregone conclusion. And

I think part of the re rationale as well

is is related to to the government

shutdown. And you know he did say that

the government shutdown will have

effects but that all those effects

should be effectively rolled back the

minute the shutdown ends. The primary

issue I guess for the Federal Reserve,

for an institution that is data

dependent

is how can you clearly make decisions

about monetary policy if you're not

getting the data by which you need to

make those decisions on. So that might

have something to do with it. But more

than that, Powell talked about how, you

know, consumer spending was still

strong, how the growth in the economy is

still strong, how inflation is starting

to go back up. And he's right, like he's

right. If inflation were to continue

higher and if the labor market were to

say cool off between now and then, you

have to wonder like would it would it

really make a lot of sense to to be

cutting rates in December? We can't know

what the future holds. So, he's

essentially saying, "Look guys, if we

start getting data that inflation's

going higher and the labor market is

picking back up, we can't assume that

we're going to have a rate cut." So that

was really the first surprise because it

wasn't really a surprise that they were

going to cut rates. We already knew that

they were going to cut rates. The odds

were extremely high and they had

advertised it from a mile away. So now

the Fed funds rate is at 4%. And if you

go look uh well this is the price of

Bitcoin which everyone wants to see. But

if you go look at at interest rates um

one of the things you'll bring it up

here. One of the things you'll notice is

that while it is at 4%

now, while it's at 4%, it is still less

than the 2-year yield. Sorry, it is

still more than the 2-year yield. So,

the Fed funds rate is still higher than

the 2-year yield. And if we were to

overlay the two-year yield onto the

chart, one of the things you'll notice

is that historically the Federal Reserve

follows the 2-year yield. The 2-year

yield does not follow the Federal

Reserve. And you can see that pretty

clearly when you look right here, how

the 2-year yield topped out and it

started going down and then the Fed

followed by reducing interest rates.

It's just like when the 2-year yield

went up,

the Federal Reserve followed and raised

rates. And you can see this time and

time again throughout history where the

2-year yield will go in a certain

direction and then the Federal Reserve

will follow.

Two-year yield tops in 2019, sorry,

2018, started going back down, the

Federal Reserve followed. So, this is

nothing new. the the market tells the

Fed what to do. The Fed does not tell

the market what to do. It's the market

that has the say.

Now, the other thing that the Federal

Reserve did that was the point of bigger

discussion, at least for us on this

channel, was that what about

quantitative tightening? Like how is

that going to to play a role here? And

if you go look at what they said, they

said, and this is what we talked about

yesterday, is they're likely going to

make an announcement soon. We just don't

know what month. It's possible that they

would have come out and said that this

they would have ended QT in November.

Like that was a possibility. It was also

possible that they would say in January.

The banks were somewhat split. Some

people thought November, some people

thought early 2026. And so the Federal

Reserve, I guess, effectively split the

difference. and they're going to reduce

or sorry they're going they decided to

conclude the reduction of their

aggregate securities holdings on

December 1 on December 1st. So we can

say that quantitative tightening

will be ending on the 1st of December.

Quantitative tightening has been going

on for a very very long time. And if you

go look if we if we remove some of this

stuff and we just go look at the balance

sheet of the Federal Reserve,

you'll notice that that this phase of

quantitative tightening lasted a lot

longer than the last one. So if you look

here in 2018, you can see that QT

started as well um maybe late 2017, but

you can see there is quantitative

tightening going on in the same way that

it's been going on since 2022.

Now, a lot of people in the crypto space

don't really like the assumptions that

monetary policy might have some effect

on the cryptoverse, but you'll also hear

those same people lament as to why this

cycle feels different. My argument is

you can't have it both ways. You can't

say that this cycle feels different, but

also say that monetary policy has no

effect. Obviously, monetary policy has

an effect. When they are printing $6

trillion and lowering interest rates to

zero like they did last cycle, we saw

metrics like Bitcoin dominance generally

go down because there was a lot of

excess liquidity. And when there's a lot

of excess liquidity, that liquidity

looks for a home. And the more liquidity

there is, the riskier assets that that

liquidity will chase. And that's how you

had you know higher risk market cap

higher market cap altcoins outperforming

Bitcoin. But when you are in restrictive

territory, when quantitative tightening

is ongoing

and not just that, but when you also

have the Fed funds rate running

theoretically above the neutral rate,

which again is an abstract and academic

concept, which there's no proof of

exactly where the neutral rate is, but

it is widely believed that the neutral

rate is below the current valuations.

Some people think it's at 3%. Some

people thinks it thinks it's slower. I

take the 2-year yield as a generally

good assessment of where the neutral

rate is. So,

it is true that the Fed will be ending

quantitative tightening soon. And it is

true that the Federal Reserve lowered

interest rates to 4%. But the 2-year

yield is at 3.6%. It's actually gone up

a little bit and it usually goes up a

little bit after a rate cut, especially

when you have a rate cut not based on on

a crisis, but a rate cut based on more

so risk management, which is exactly

what these rate cuts are, right? They're

risk management rate cuts, just as

Jerome Powell said. And you could argue

that ending quantitative tightening is

also a form of risk management. It's

just balance sheet risk management. Now,

with all that said, we can maybe talk

about what people actually care about

and and that is how does it affect risk

assets like Bitcoin and perhaps we'll

also talk about the S&P 500 too. So,

if we go take a look at Bitcoin, one of

the things you guys have heard me say

for a very, very long time going back

years

is that last cycle we know that Bitcoin

topped out before quantitative

tightening ended. So, if you look here

when Bitcoin topped, it actually topped

just before the first rate cut in 2019.

So to some degree this cycle has already

played out differently because if you go

look at the first rate cut in 2019 or in

2024 you can see that Bitcoin went up

after it. So it's not apples to apples

like we're not comparing the exact same

thing. Now I will say that I do firmly

believe that the top for this market

cycle is going to be the fourth quarter

of this of this year. And we've said

that for a while, right? Normally it's

the fourth quarter of the post having

year. It's not what I want to happen,

right? Like and again like I think

people need to recognize that, you know,

from 2022 until 2025, I was bearish on

the ETH Bitcoin valuation and a lot of

people took that out on me because they

they they were motivated to think it

would go up financially. So they took it

out on me. But remember, like I don't

I'm just telling you guys what I think.

And what I think is that if you look at

all prior cycle tops for Bitcoin, they

occurred in the fourth quarter of the

postelection year or the post having

year, right? You have Q4 of 2013,

you have Q4 of 2017,

you have Q4 of 2021. And I'm just simply

suggesting, hey guys, there's a

reasonable chance that we might have a

top in the fourth quarter. So that's

essentially what I'm saying is that,

you know, you might have you might have

a rate cut here in

sorry, you might have a a a top in in

2025. I'm trying to make sure my screen

is still looking good. All right. So now

we just have to figure out, right? Okay,

we just have to figure out if this time

is different or if it's not. I subscribe

to the idea that it's not. If it's not

different, we then just have to figure

out if the top is in because there was a

top in October and there's always a

chance that that corresponds to the

cycle top. If you look at the ROI from

the low, you can see that, you know,

like it's not it wouldn't be completely

far-fetched for that to ultimately be

the cycle top and for the low to just

occur around next October. That's always

a chance, right? There's always a

chance. And so what I want to do in this

case is we know that, right? We know

that. And we know that the the the the

sort of the timing on when to accept

that that the top could be in would be

on weekly closes below the 50week moving

average on two weekly closes as

historically

two two consecutive weekly closes.

Historically, that's what marks the end

of the cycle, right? It doesn't tell you

when the top is in. It just tells you

when the cycle is definitively over. And

I mean, it does tell you that the top

was in, but it doesn't tell you in real

time, right? So, if you get weekly

closes below that, there's a decent

chance that the cycle is coming to an

end. Now, what's interesting is this

cycle, we have not really seen euphoria

in the way that we saw in the fourth

quarter of 2013 and the fourth quarter

of 2017 and the fourth quarter of 2021.

we haven't seen euphoria. And so it

raises the question, well, why not? And

like, why would this time be different?

Or maybe it's not like maybe we still

have a parabolic rally ahead of us and

we're just all too impatient to see it

play out. And I I do want to remind

people that it is a valid option. If you

look at if you overlay total assets held

by the Federal Reserve with interest

rates, one of the things you'll notice

is that Bitcoin topped before

quantitative tightening ended. And so if

you look at today, right, if you look at

where the top has been so far this cycle

and we note that QT will be ending in

December,

you could argue that all right, well, if

it plays out like 2019, maybe that ends

up being a local top. Now, there's sort

of two different ways to look at this.

One way is if if the top is in, then you

you you might not have nearly as massive

of a drop as in prior cycles. You might

have more of like what you saw in 2019

where the price just hovered above 10k

for a while. So what if we are in a

similar phase where if you look at the

2019 move during those rate cuts during

quantitative tightening, Bitcoin was

essentially holding just above 10k for

months. What if we're doing the same

thing this cycle, but instead of 10K,

it's 100K,

just 10x the move.

Now, that doesn't necessarily mean

though that the top has to be end. And

so, you have to ask yourself, well, if

last cycle rate cuts signal the top,

well, then they didn't this time, right?

Because again, you look at 2019 when

rate cuts started, the top was in. Rate

cuts started in September. I believe of

2019 and and um or no maybe it was July.

It was July but still the top was in and

and so in this case if last cycle when

rate cuts began the top was in

if we had assumed that this cycle we'd

have missed out on a lot of gains. So in

the same way with quantitative

tightening it would be really easy to

assume right now that the top is in

especially with Bitcoin just stuck in

traffic on Struggle Street for the last

several weeks. be easy to assume that

and honestly we need to take that into

consideration. I've said for a long time

I'd say there's like at least a 40%

chance that the top of the cycle is in

October.

But we also have to be flexible and say,

well, if last cycle rate cuts didn't

mean the local if last cycle rate cuts

meant that the local top was in, but

this cycle it didn't, does that mean

that last cycle quantitative tightening

starting meant the top was in three

months before? Does that mean it has to

play out the exact same way this cycle?

And so I think what you have to do is

you have to go back and you have to to

to look specifically at at why the Fed

was cutting in 2019 and why the Fed was

ending quantitative tightening in 2019,

right? Because the reasons matter.

and and and one one sort of way to think

about like why the reasons matter. If

you look at at just the S&P 500, right,

one of the things you could say and and

a lot of people have said is that a lot

of times people say, "Well, when rate

cuts happen, that's when the markets

fall off a cliff." And they're right

that there there are times in history

where rate cuts happen and it's a really

bad recession, right? Like look at this.

in in 2007 rate cuts didn't do a thing

to help revive the stock market for over

a year.

In 2001, rate cuts didn't do a thing to

revive the stock market for years.

So, you could look at that and say,

well, all rate cuts imply that the

markets have to go down. But if you look

at 2019, you can see that rate cuts were

happening and the market went up. And if

you look at this cycle, rate cuts were

happening and the market went up. So it

matters why, right? There there there's

some level of like if you're going to

cut rates when the Fed doesn't need to.

If it's not in response to a crisis,

then it's bullish. If the Federal

Reserve is cutting rates in response to

a crisis, then it's bearish. So the

reason matters. So then why was 2019

different than than the other cycles?

Well, you could argue that that that the

economy, while it was somewhat weaker

and inflation was kind of trending down,

it wasn't nearly as weak as what we saw

back in the dot era. In fact, if you

were to simply overlay the unemployment

rate onto the chart and you look here at

at 2019 when the Federal Reserve was

cutting rates, the unemployment rate was

was trending down, right? It was

trending down. Now, this time it's

actually been trending up as they've

been cutting rates. But the reason the

market has not cared is because the

unemployment rate has been trending up

in a somewhat controlled fashion. It has

not really entered into this sort of

this nonlinear phase where it just goes

parabolic and everyone starts panicking.

I believe that will be the end of the

cycle. The end of the business cycle

will occur when the unemployment rate

aggressively goes up. And that's how the

business cycles work. That's how they've

always worked. Timing is hard. Timing is

hard. So in this case, since we know

that not all rate cuts have to mean the

top is in, does that mean that QT has to

mean the top is in for Bitcoin? Not

necessarily.

You could look at at and I I pulled up

here some of the prior announcement

dates for for the last cycle and you

could look at that and say, "All right,

well, back in 2019, the Federal Reserve,

it looks like they announced the end of

quantitative tightening. They announced

it in in July." Okay, so when they

announced it, Bitcoin had already topped

and they announced it would be ending,

you know, in the last month would be

August. And so September, you would

start to visibly see the balance sheet

going up. So that's why a lot of people

just say it was September although I

think August was the last month where

they let where they let the the balance

sheet roll off like that

and the top was of course in. But why

did the Federal Reserve in quantitative

tightening in 2025, right? Well, to some

degree in well, sorry, in 2019, well, I

started in 2025 because we're we're

already in SWAT. In 2025, as we talked

about, you know, yesterday, one of the

main reasons was um liquidity in money

markets there. There's there's a little

bit of strain in money market accounts.

And so, by ending QT, that helps to

reduce that strain. They want to make

sure that that liquidity is not an

issue, that banks are are doing just

fine. Furthermore, the reverse repo

facility had fallen significantly and it

was kind of a sign that all this excess

liquidity from the pandemic was gone and

that people weren't really using it

anymore. Right? So, if you look at at

the reverse repo facility,

you'll see what I'm talking about.

Let me just remove these moving

averages.

So here you can see reverse repo is

essentially back I mean it's back to 20

billion. So it's way back down. All this

excess liquidity that we had during the

pandemic is gone. So the reserve the the

the reverse repo facility isn't really

being used as much now than it was. And

so the Federal Reserve risks that if

they continue quantitative tightening

beyond this point then it could really

start to negatively impact the banks. So

the 2025 decision to end quantitative

tightening is mainly about just

preserving

liquidity, right? Preserving the

function of the market and it is a

riskmanagement tool.

The Federal Reserve has sort of flushed

excess liquidity out, right? It's gone

at this point. And so they risk if they

continue then starting to have very neg

negative impacts. Now, in 2019, it was

somewhat different, right? In 2019, the

Federal Reserve announced in July that

they were going to reduce or they were

going to end quantitative tightening in

like August and and therefore you would

see it in in September. So, they had

already pursued like normalization of

their balance sheet for a while, not as

long as this cycle, but they had been

going it had been ongoing for I think

like at least a year and a half, right?

Like from like 20 through 2018 and and

then like half of 2019. So back then the

Fed recognized that the reserves and

liquidity in the system were becoming

less abundant like they were today. But

the main difference is that in 2019 the

macro environment looked a lot

different, right? There was more of a a

global growth slowdown. And I know what

you're thinking. You say, "Well, that's

the same thing as today." Maybe, but

that's not really what real GDP

continues to indicate, right? The United

States continues to expand. Again,

sometimes that can change. Also, back

then we were having weaker inflation,

right? Weaker inflation, not stronger

inflation. So, if you were to overlay

the United States interest rate or

sorry, inflation rate year-over-year and

you were to look here at 2019

um in in in August or sorry, in July,

you can see that inflation was actually

below 2%. Right? It was below 2%. And

then right after they ended quantitative

tightening,

inflation went up,

right? It went up. So now they're ending

QT, but inflation is above target and

it's been trending up.

So, one thing we have to remember is

that the Federal Reserve absolutely

risks

rekindling the animal spirits in the

market. And you guys know what I'm

talking about. It's that feeling of

FOMO, the feeling of like, oh no, I'm

going to miss out. And everyone just

piles in. And one great example of that

is to simply look at interest rates

in the 1990s and note what the Fed did.

And what you have to do here is you

overlay the S&P 500.

We're going to have to wrap this up

soon, but you overlay the S&P 500. And

you see that the Fed was lowering rates

and then they raised them and then they

lowered them and they had to raise them

again to ultimately kill off the animal

spirits. So the Fed does risk and this

is what pal is worried about if they

lower rates too much and you know they

start printing and whatnot they do risk

rekindling the animal spirits in all of

us and thus needing to then raise rates

later on. And that's how one way you

could ultimately kill the animal spirits

of the market is to go about something

like that. And so you know you can see

that back then they lowered rates it

rekindled the animal spirits. markets

went up, they eventually had to raise

rates to ultimately bring back down the

market and and get a hold on things and

not let valuations continue to just melt

up uh for for too much longer, bring us

back down to sort of reasonable

valuations. Okay, so in both 2019 and

2025, liquidity was a concern, right?

There were strains in money market

accounts back then just like there are

strains today. But some of the

differences are that in 2019 the Fed was

more worried about weaker inflation and

wanting to kind of get that back up like

you know because if you go negative if

you go below zero you become you become

deflationary and while that sounds good

in our minds it's really really bad for

risk assets. Um

and so macro policies are different as

well. Uh there's a lot of differences,

right? Like there's a lot of differences

that we could point to. You could point

to like global tensions were different

back then. You could point to inflation

is different today. You could point to

all sorts of things. But at the end of

the day, the one thing we have to like

make sure we don't fall into the trap of

is assuming this time has to be

different just because we want it to be.

Okay. So the way I would think about it

is like this. Back in 2019 when Bitcoin

topped before

QT ended, you'll note that it stayed

around those prices until September,

right? Until the month that QE started.

Bitcoin had a big drop when quantitative

easing started. So, what I would say is

if it does play out the same and the top

is in, then you might see something

similar where there's a big drop that

occurs around the time that QT actually

ends or maybe just after it if we can't

move up between now and then. And so

essentially how that could play out is

like everyone's like waiting for QT to

end and everyone's waiting for QE to

begin and for more rate cuts and then

like if Bitcoin isn't going up and then

that that time comes and goes and

there's still isn't a rally then people

give up. They're like well QE hasn't

fixed it, lower interest rates haven't

fixed it. Guess the market's got to go

down.

There's still time though, right?

There's still time for something else to

happen. So, I would I would say this. I

would say this. No one has a crystal

ball. We all wish we did, right? I wish

I had a crystal ball. I wish I could

tell you guys exactly what was going to

happen. But the way I would think about

it is is is as such. If Bitcoin

is not able to move higher by December,

then it's probably not going to for a

while. What's probably going to happen

is we're going to go into this phase for

2026 where the market starts to just

slowly go down, right? Not a crash down,

not like a massive crash down, just

slowly down. And the reason it wouldn't

be a massive crash would be if we don't

actually get euphoria, right? If we

don't actually have that euphoria. When

you have euphoria, you get massive

crashes. When you have Bitcoin dominance

at very low levels, you have massive

crashes. Right now, we're at higher

Bitcoin dominance levels. Now, the other

thing to look at here is when Bitcoin

dominance was at this same exact level

in 2019,

right here. It was actually just before

the top was in, right? Because what

happened is Bitcoin dominance exploded

higher,

right? It exploded higher and Bitcoin

USD went to a new high as the altcoin

market bled away. And that's what's

happen been happening all cycle. Bitcoin

keeps going to higher highs. Altcoins

are hardly doing anything. Some of them

go to new all-time highs, but most of

them don't. So that's why I would say in

in an environment as uncertain as this,

if you're going to hold something in

crypto,

Bitcoin is the best play because

dominance will likely go up.

It likely will. In fact, did you know

that in 2017

total 2 minus USDT divided by Bitcoin

right here is that was at the same value

that it is today, right? We live in a

simulation sometimes it feels like cuz

again in late October, early November

2017,

total 2 minus USCT divided by Bitcoin,

same valuation as it was today. What

happened back then is it went down and

then got another rally and then it went

down again and then it got a bigger

rally.

So, I just want people to think about

this stuff because you could have all

Bitcoin pairs drop into early November,

then get some type of like counter trend

rally as people prepare for QT and then

Bitcoin liquidity takes over going into

December because Bitcoin December is

normally Bitcoin's month for liquidity

to flow back to that and then QT ends in

December and then all Bitcoin pairs

potentially find a low.

I think it could play out like that. So

the best case, like the best reasoning

for like why Bitcoin could still maybe

go higher

would be that if would would simply be

that altcoins liquidity is likely going

to go back to Bitcoin. And if that's

true, then maybe Bitcoin could go higher

one final time before the cycle's over.

The only other thing I'd point to that

that that is extremely extremely dubious

I'm not asking you to take this to the

bank is that in 2019

in 2019

the top

was around 14K

around 14K.

We were to 10x that today it put you

around 140. Okay. The reason why all

that's interesting is because the if if

it works out like that then all these

lows would be fairly interesting lows,

right? because you would have one low at

74K. This one was at 7.4. So, if we were

to go to 140, then that would get a a

50% drop would get you to 74K, which is

exactly the low that Bitcoin had uh back

in, you know, back in May. That would

act likely as a support level. And then

the other thing the other thing is is

the next low after that

was like around in the 60k range which

again is the prior all-time high. So

let's keep an open mind. Let's see what

happens over the next month or two. If

by December Bitcoin is still not at

all-time highs, then it then like it's

likely not going to be. But if we go to

new all-time highs and we go to 130 140,

there's a good chance we're flirting

with the market cycle top. Regardless,

Bitcoin's a better hold for now. We'll

see if that changes in a couple of

months. If you guys like the content,

make sure you subscribe to the channel,

give the video a thumbs up, and check

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I'll see you guys next time. Bye.