The Fed has "shaved points" $6.8 billion for the first time since 2020, does the crypto market sense the easing?

The Fed plans to conduct a repurchase agreement operation of $6.8 billion on December 22, 2025, to alleviate liquidity pressure in the financial markets at the year-end. This is the first such liquidity-increasing repurchase operation by the Fed since 2020, with approximately $38 billion deployed in the past 10 days. Although the Fed emphasizes that this move is part of regular year-end liquidity management and unrelated to a shift in monetary policy, crypto market investors still interpret it as potential favourable information for risk assets, believing that the increase in liquidity within the system will help improve the overall risk appetite of the market, creating a more favorable macro environment for crypto assets like Bitcoin.

In-depth Interpretation: What is a Buyback Operation? Why Restart it Now?

For many cryptocurrency investors, the term “repo” that frequently appears in financial news may seem unfamiliar and professional. Simply put, a repurchase agreement is one of the core tools used by central banks to manage the daily liquidity of the financial system. In this process, the Fed acts as a temporary “pawn shop”: it provides short-term cash loans to commercial banks while accepting high-quality securities such as government bonds as collateral. Typically, within one or two days, the banks will return the cash and redeem the collateralized assets. The core purpose of this mechanism is to ensure that the banking system has sufficient reserves, preventing short-term interest rates (such as overnight rates) from soaring abnormally due to temporary shortages of funds, thus maintaining the smooth operation of the financial markets.

The reason why this $6.8 billion operation has attracted significant attention lies in its symbolic meaning. This is the first time since the market turmoil triggered by the COVID-19 pandemic in 2020 that the Fed has conducted such a clearly defined repurchase operation aimed at “increasing liquidity.” It is different from the Standing Repo Facility (SRF) established in 2021, which is a tool initiated by banks, whereas this time the Fed is taking the initiative. The timing of the operation is also quite delicate—right at the end of the year. At this time, banks experience a seasonal surge in demand for cash reserves to meet various regulatory requirements and beautify their balance sheets, leading to increased liquidity tightening pressure. The Fed's intervention at this moment aims to smooth out potential fluctuations in funding.

Recent Key Data Review of Fed Liquidity Operations

• December 22nd single transaction limit: 6.801 billion USD
• Total Liquidity Deployed in the Past 10 Days: Approximately 38 billion USD
• Average Daily Trading Volume of SOFR Market in 2025: Approximately $2.7 trillion
• Transaction volume achieved through repurchase: Over 1 trillion dollars
• Total Amount of Government Bond Purchase Plan Starting from December 11: Approximately 40 billion USD

In order to respond more flexibly to year-end challenges, the New York Fed updated its repurchase operation rules on December 10, removing the total transaction limit and shifting to a “full allocation” framework, with a bidding cap set at $40 billion for each auction. This series of measures outlines the multi-layered liquidity safety net constructed by the Fed to ensure a smooth transition at the end of the year.

Absolutely Not QE: The Tug-of-War Between Policy “Determination” and Market “Imagination”

Whenever there are signs of expansion in the Fed's balance sheet, the market always speculates about the “restart of quantitative easing (QE)”. This time is no exception. However, authoritative analysts and economists quickly drew a line. Quantitative easing is a long-term monetary policy aimed at directly stimulating the economy by permanently purchasing bonds to inject base money into the system, thereby lowering long-term interest rates. On the other hand, repurchase operations are essentially short-term, collateralized “bridge loans” where funds are recouped within a few days, not changing the long-term monetary base, purely to address technical mismatches in funding.

As the well-known analyst ImNotTheWolf commented: “The key is that this is not QE, it’s not printing money, nor does it mean that the Fed is easing policy, because this money needs to be repaid. But it does indicate that the liquidity situation is still a bit tight.” This statement accurately summarizes the subtle mindset of the current market: on one hand, understanding the regularity of the operations, while on the other hand, being unable to ignore the liquidity concerns it reveals - the fact that banks need to borrow more reserves is itself a signal of tightening funding conditions.

At the same time, the Fed's approximately $40 billion Treasury bond purchase program (Reserve Management Purchases) launched on December 11 has been clearly defined as a technical operation to “maintain sufficient reserves,” rather than a policy shift. Fed officials have repeatedly emphasized that the current policy focus remains on maintaining a “restrictive” stance to ensure sustainable inflation returns to the 2% target. This situation of “providing liquidity operationally” while “maintaining a tight stance” constitutes the complexity of the current macro picture. The market seems to be interpreting a contradictory signal: the central bank's hand is providing short-term lubrication, but its mouth is still warning against excessive risk-taking.

Crypto Market Logic: Why is “Technical Operation” Considered Favourable Information?

Despite the Fed's efforts to clarify, the reaction in the crypto market has shown a different picture. The price of Bitcoin strengthened briefly after the related news broke, and market sentiment was clearly boosted. Behind this reaction is the crypto market's own set of macro analysis logic. In the eyes of cryptocurrency traders, the overall liquidity of the financial system is like a huge “pool”; any act of adding water to this pool, regardless of its technical intent or how short-lived it may be, will temporarily raise the water level. A higher liquidity level means lower financing costs and reduced pressure in the financial markets, which is typically favorable for “risk assets”.

The crypto market, which has a short but highly volatile history, is particularly sensitive to such signals. Analyst TheMoneyApe's perspective represents this market consensus: “More cash entering the system means easier financing, lower pressure, and a more favourable environment for risk assets like BTC and crypto assets.” When banks and financial institutions can obtain short-term funds at a lower cost, some redundant liquidity may seek higher-yielding outlets, and the highly volatile crypto market, which also offers potentially high returns, naturally becomes one of the alternatives. This has psychological similarities to the macro narrative of the global central banks' extensive monetary easing post-2020 pandemic that birthed the crypto bull market, although the scale is not comparable.

More importantly, participants in the crypto market often trade on “expectations”. This operation is seen as a potential “trial balloon” or an early signal of policy adjustments. The market is speculating that if such a strong operation is needed to alleviate liquidity pressure at the end of the year, then if signs of economic weakness appear in 2026, will the Fed turn to true easing earlier and more decisively? This expectation of future easing has already been partially factored into asset prices. Therefore, the rise in the crypto market is not only a direct response to the current improvement in liquidity but also an early bet on the Fed possibly “shifting from tight to loose” in the future.

Liquidity Transmission Chain: From Repo Rate to Crypto Candlestick

Understanding how liquidity ultimately affects the prices of crypto assets requires tracking an invisible transmission chain. The starting point of this chain is the Fed's repurchase operations, which directly lower key short-term interest rates, such as the Secured Overnight Financing Rate (SOFR). When SOFR remains stable or even declines, it means that the short-term borrowing costs across the entire financial system are low. This is particularly important for hedge funds and proprietary trading firms that employ quantitative strategies and rely on leverage, as they constitute a significant group of institutional participants in the crypto market.

A low-cost funding environment encourages these institutions to increase their risk exposure. They may engage in more arbitrage trading (for example, borrowing dollars to invest in high-yield crypto asset staking or DeFi protocols) and may also participate more actively in market-making activities in both futures and spot markets, thereby enhancing the overall depth and activity of the market. Additionally, a liquidity-rich environment is often associated with expectations of a weakening dollar (due to potential increases in money supply), and historically, crypto assets like Bitcoin have been viewed by some investors as a hedge against dollar depreciation, which adds another layer of appeal.

From a broader asset allocation perspective, when traditional financial markets experience a decrease in volatility and a rebound in risk appetite due to liquidity injection, the “migration” of funds from safe-haven assets such as government bonds and money market funds to risk assets such as stocks, corporate bonds, and even crypto assets will be smoother. This “rising tide lifts all boats” effect, although the transmission can be delayed and nonlinear at times, often self-reinforces when market sentiment turns optimistic. Therefore, a $6.8 billion repurchase operation might have a real impact far exceeding its face value; it acts like a stone thrown into a calm lake, creating ripples that spread through the crypto market via channels of confidence and expectations.

Historical Reflection: The Coincidence of the Last Repurchase Operation and the Crypto Market

Turning the clock back to 2020, when the Fed launched large-scale repurchases and unlimited QE to address the “dollar shortage” in the global market caused by the COVID-19 pandemic. Although the context is completely different (then it was a comprehensive crisis response, now it is a preventive fine-tuning), observing the performance of the crypto market during that period can still provide insights. After extreme panic in the market in March 2020, with the full activation of the Fed's liquidity tools, Bitcoin, after experiencing a halving crash, initiated an epic bull market lasting nearly two years in May of that year.

Of course, directly attributing the rise at that time to the buyback operations is an oversimplification. More accurately, it was a perfect storm driven by “epic levels of loose monetary policy + fiscal stimulus + technological innovation (DeFi Summer) + macro inflation narrative.” However, it is undeniable that the extremely loose global dollar liquidity environment created by the Fed's flood of liquidity at that time was the foundational backdrop for the surge in all risk assets. Although the current scale of liquidity operations is small, it has allowed some market participants to faintly see the shadow of that early cycle's “tentative easing.”

Another case worth considering is September 2019, when the U.S. repurchase market interest rates suddenly soared to 10%, forcing the Fed to restart its term repurchase operations for the first time in a decade to inject liquidity. In the following months, Bitcoin initiated a rally at the beginning of 2020 after experiencing a period of consolidation. These historical fragments hint that the Fed's response to short-term liquidity crises, even if not aimed at stimulating the economy, may indirectly create a favorable window for crypto assets by changing market liquidity and risk appetite.

Outlook: Year-end Special Supply or Trend Indicator?

Currently, the most concerning question for all market participants is: is this repurchase operation an isolated event, or the beginning of a more sustained liquidity support trend? The Fed's official stance is clearly the former, emphasizing its “seasonal” and “technical” nature. The coming weeks are crucial, and the market will examine every economic data point and every speech by Fed officials like detectives, searching for clues about the policy path for 2025.

For the crypto market, the positive sentiment in the short term may continue to be supported, after all, “Liquidity improvement” is a tangible Favourable Information. However, investors also need to maintain a level of clarity. First, this is indeed not QE, and its scale and sustainability cannot be compared to a true easing cycle. Second, the ultimate direction of the crypto market still depends on its internal factors, such as the capital flow of Bitcoin ETFs, the development of the Ethereum ecosystem, regulatory progress, etc., and macro liquidity is just one of many variables.

A reasonable strategy might be to view this liquidity operation as a buffer against downside risks and a potential call option. It may not be enough on its own to drive a major bull market, but its appearance at this point reduces the likelihood of an unexpected crash in the market due to year-end liquidity shortages and lays the groundwork for a more favourable macro shift that could occur in 2026. In the world of investing, sometimes what matters is not whether the faucet is fully open, but whether people can hear the sound of water beginning to flow into the pipes. Currently, the “ears” of the crypto market have clearly perked up.