After the formal conclusion of the Quantitative Tightening (QT) policy, global financial markets are closely watching the Federal Reserve's next steps regarding its balance sheet strategy. Recently, Bank of America released a striking forecast: starting in January 2026, the Federal Reserve will purchase up to $45 billion in short-term Treasury bills each month. This move aims to address the significant recent decline in foreign exchange reserves and ensure that the market has sufficient bank reserves. This potential liquidity shift could have far-reaching implications not only for traditional financial markets but also for new opportunities in the cryptocurrency space. This week, the Federal Open Market Committee (FOMC) meeting and the latest statements from Fed Chair Powell will provide a clearer picture for the market.
- Federal Reserve Policy Shift: $45 Billion Monthly Treasury Bill Purchase Plan
Bank of America's forecast reveals the proactive measures the Federal Reserve may take to maintain financial system stability after the end of Quantitative Tightening (QT).
Purchase Plan: Bank of America expects the Federal Reserve to begin purchasing approximately $45 billion in short-term Treasury bills each month starting in January 2026.
Background Reason: This strategy is intended to maintain sufficient bank reserves following a significant recent decline in foreign exchange reserves. Since halting the QT policy on December 1, the Fed's foreign exchange reserves have dropped to $2.86 trillion, accounting for 9.2% of GDP, raising concerns about insufficient market liquidity.
RMP Plan: The Fed is expected to clarify or outline through its implementation how it intends to transition to a Reserve Management Purchase (RMP) plan. According to Evercore ISI, this plan could begin as early as January 2026, with approximately $35 billion allocated monthly for Treasury bill purchases, and reinvesting funds from mortgage-backed securities into short-term assets.
Balance Sheet Expansion: Such a shift would mark the first sustained expansion since the onset of Quantitative Tightening (QT). Reinvesting in Treasury bills could steadily rebuild reserves and shorten the maturity of the system's open market accounts, gradually increasing reserves and leading to an annual balance sheet growth exceeding $400 billion.
- This Week's Federal Reserve Meeting: Rate Cuts and Balance Sheet Expansion, How Will Powell Balance?
This week's Federal Reserve meeting is expected to be one of the most controversial in years, with market focus on the divergence among decision-makers regarding rate cuts and Powell's signals about the future path.
Rate Cut Expectations: The FOMC will meet on December 9-10, and a 25 basis point rate cut is anticipated. Analysts at Bank of New York Mellon note that the market has fully priced in the expectation of a rate cut this month, but there is growing consensus that this will be a hawkish cut.
Hawkish Rate Cut: This means that further monetary easing will depend on whether economic data released in March and June 2026 shows weakness or if inflation continues to decline.
Chairman Transition Risk: The upcoming transition of the Federal Reserve Chair also poses a risk, as the market will assess the policy inclinations of the new leadership.
Dot Plot Divergence: The FOMC will release a dot plot, likely confirming recent internal divergences in policy stance. Significant differences in committee members' views on the 2026 policy direction are expected, reflecting dual economic risks.
Powell's Balancing Act: The market will focus on how Powell balances maintaining labor market stability with ensuring the credibility of the inflation path. His explanations regarding reserve adequacy, balance sheet strategy, and the timing of RMP implementation will influence market expectations for 2026.
- Liquidity Shift: Structural Reset in the Market and Bitcoin's Sensitivity
The end of the Federal Reserve's Quantitative Tightening policy marks a turning point in the liquidity cycle, with profound implications for risk assets, including Bitcoin.
Reserve Shortage: The QT policy officially ended on December 1, concluding a period during which the Fed reduced its balance sheet by approximately $2.4 trillion. Bank reserves have fallen to historically tight levels associated with financing stress, and the Secured Overnight Financing Rate (SOFR) has periodically tested the upper limit of the policy corridor. These developments indicate that the system no longer has ample liquidity and is gradually entering a concerning reserve shortage.
Bitcoin's Sensitivity: Historical data shows that Bitcoin tracks these liquidity cycles more closely than changes in policy rates. If the Fed confirms that reserve rebuilding is underway, Bitcoin's sensitivity to balance sheet dynamics may quickly re-emerge.
Monetary Aggregate Indicators: Broader monetary aggregate indicators suggest that the liquidity cycle may have begun to shift. The M2 money supply has reached a record $22.3 trillion, surpassing the peak at the beginning of 2022 after a prolonged contraction.
On-Chain Pressure: The apparent stability of Bitcoin's price range masks a period of concentrated pressure, with on-chain data indicating that investors are losing nearly $500 million daily, and leverage in the futures market has significantly decreased, with nearly 6.5 million Bitcoins currently in an unrealized loss state. These conditions resemble the later stages of previous market contractions.
- Macro Traps and Labor Data: The Federal Reserve's Policy Dilemma
The Federal Reserve's policy choices are narrowing, with labor data becoming a key consideration.
Weak Labor Market: In the past seven months, non-farm payrolls have declined in five months, and the slowdown in job openings, hiring rates, and voluntary resignations has shifted the employment situation from resilience to fragility. The "soft landing" framework is becoming increasingly difficult to sustain.
Inflation and Tightening Costs: Inflation has eased but remains above target levels; however, the costs of prolonged tightening are rising. The risk is that the weak labor market situation may worsen before deflation is fully resolved.
Value of This Week's Press Conference: This week's press conference may be more valuable than the interest rate decision itself.
- Internal Dynamics of Bitcoin: Quiet Adjustments and Potential Bottoms
The internal market dynamics of Bitcoin also reinforce the view that this flagship digital asset has been undergoing quiet adjustments.
Short-Term Holder Sell-Off: Short-term holders continue to sell tokens as prices decline, with production costs approaching $74,000, leading to deteriorating mining economics.
Mining Difficulty Decline: Mining difficulty has recorded its largest drop since July 2025, indicating that marginal operators are scaling back or shutting down.
Early Signs of Supply Tightening: These pressure signs coincide with early indications of supply tightening. Large wallets have accumulated approximately 45,000 BTC, exchange balances continue to decline, and stablecoin inflows suggest that if conditions improve, funds are preparing to re-enter the market.
Long-Term Holding Trend: Cryptocurrencies are shifting from more liquid trading venues to long-term holding, resulting in a reduced supply available to absorb further sell-offs. This pattern, combining forced distribution, miner pressure, and selective accumulation, typically forms the basis for a lasting market bottom.
Conclusion:
Bank of America predicts that the Federal Reserve will purchase $45 billion in Treasury bills each month, signaling a significant shift in the liquidity cycle following the end of Quantitative Tightening. The internal divergences within the Federal Reserve regarding rate cuts and balance sheet strategy, along with the weakness in the labor market, collectively shape the current macroeconomic backdrop. While Bitcoin's price trend appears stable, beneath the surface, the market is undergoing a structural reset. If Powell's remarks reinforce the view that reserve rebuilding is the next phase of the policy cycle, then capital flows may quickly shift towards assets that respond positively to liquidity expansion, potentially igniting the crypto market.
Related Reading: Michael Saylor Promotes Bitcoin-Backed Banking Systems to Governments
Original Article: “Bank of America Forecasts: Will the $45 Billion Monthly Treasury Bill Purchases Ignite the Crypto Market?”
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