Betters on a prediction market platform are now convinced that the US Federal Reserve will conclude its quantitative tightening (QT) program by May of this year, a decision that many analysts believe could ignite the next phase of the cryptocurrency bull market.
As of March 14, the betting probabilities indicating that the Fed will terminate QT by April 30 stood at an absolute 100%, and this figure has remained stable at the time of this update.
This particular wager, framed as “Will the Fed end QT before May?”, has seen over $6.2 million in total trading volume.
The platform has gained attention for allowing users to place bets on real-world events, notably achieving considerable visibility during the 2024 US presidential election cycle, where it accurately forecasted Donald Trump’s rise.
Quantitative tightening is a monetary policy employed by the Fed to reduce money flow in the economy by allowing the bonds on its balance sheet to mature. It contrasts sharply with quantitative easing, a strategy the central bank adopted following the 2008 financial crisis to expand its balance sheet.
The current phase of QT has been active since June 2022 as part of broader measures aimed at combating inflation. Alongside hikes in short-term interest rates, the Fed implements QT to increase long-term rates and remove surplus liquidity from the market.
Though the initiation of QT did not prevent rallies in stock and crypto prices—after two years of remarkable growth—recent macroeconomic pressures have made it a stumbling block, particularly in light of developments during the Trump administration.
A senior investment director had predicted in 2022 that the adverse effects of QT would surface once “something breaks.” He noted at the time:
“With QT just starting, the risk to financial markets appears subdued. However, introducing QT into an already challenging and volatile market setting may exacerbate conditions, amplifying the risk of a significant disruption from excessive tightening.”
The notion that the Fed may soon halt QT is perceived by many as a bullish signal for cryptocurrencies, suggesting that increased liquidity will flow into risk assets. Coupled with potential interest rate reductions later in the year, these developments could provide the impetus to reverse the prolonged downturn in the crypto market.
This perspective aligns with insights from a crypto analyst who anticipates that the end of QT will trigger a comprehensive market rally.
While the Fed has yet to officially announce plans to slow down its QT program, minutes from the January meeting of the Federal Open Market Committee indicated that some officials expressed concern that ongoing balance sheet reductions could affect the upcoming debt ceiling discussions. Participants highlighted the importance of possibly pausing or decelerating balance sheet reductions until the situation was resolved.
Significant policy shifts at the Fed are coinciding with an overall improvement in the business cycle. Recent reports noted that the US Manufacturing Purchasing Managers Index (PMI) has shown expansion for two consecutive months after enduring over two years of contraction.
Historically, Bitcoin’s price peaks have aligned with the highs of the business cycle, as indicated by the manufacturing PMI.