The real impact of quantitative easing policies on cryptocurrencies

Source: The Crypto Advisor, Translation: Shaw Golden Finance

Over the past week, our internal discussion atmosphere has subtly shifted. It’s not due to any earth-shattering event—no bold predictions, no sweeping conclusions—just a nuanced yet perceptible change in tone. The Federal Reserve’s recent decisions have ignited a cautious sense of excitement. The widely anticipated rate cuts, combined with a moderate-scale treasury purchase plan, have once again prompted active discussion. This isn’t because the Fed’s policies are aggressive, but because they seem to signal the beginning of a certain shift.

The impact of monetary policy shifts rarely appears immediately on charts. You first hear its effects: slight fluctuations in the financing markets, a modest decline in market volatility, and a slight reduction in risk appetite. Liquidity does not change overnight; it quietly circulates within the system, first altering market behavior, then influencing prices.

This dynamic affects all asset classes, but its impact is especially pronounced at the margins—where valuations are less anchored, durations are longer, and outcomes are more sensitive to capital costs. Cryptocurrencies happen to fall into this category. The mainstream view is simple: Loose monetary policy benefits cryptocurrencies. Rate cuts, balance sheet expansion, and declining yields push investors toward the riskier end of the curve, and cryptocurrencies have traditionally been at the far end of that curve. This logic is intuitive, widely accepted, and reinforced by memories of extreme periods like 2020.

But intuition is not evidence. Cryptocurrencies only exist in a few liquidity environments, and environments similar to sustained quantitative easing are even rarer. Our understanding of the relationship between cryptocurrencies and QE largely stems from inferences during special periods, not from deep historical experience. Before viewing this shift as a clear signal, it’s prudent to slow down and ask a more rigorous question: what do the data actually tell us? Equally important, where does it stop?

Answering this requires reviewing each meaningful period of liquidity expansion since the inception of cryptocurrencies, distinguishing expectations from mechanisms, narratives from observable behaviors.

If we are to discuss “QE being beneficial to cryptocurrencies,” we must first acknowledge an unsettling fact: the entire history of cryptocurrencies has been set against a backdrop of very limited liquidity environments, and only some of these resemble the traditional QE post-2008.

A clear measure is the Federal Reserve’s balance sheet (WALCL in FRED), which to some extent reflects systemic liquidity and policy direction. Let’s review the history.

1) First round of QE (2009-2010): Cryptocurrencies did not truly exist in the market at that time

The first QE began in March 2009 and lasted about a year, characterized by large-scale purchases of mortgage-backed securities (MBS), agency bonds, and long-term government bonds.

Bitcoin was born in 2009, but at that time, there was no meaningful market structure, liquidity, or institutional participation to study. This is crucial: the “initial” QE that shaped modern markets was still in a prehistoric stage for tradable cryptocurrencies.

2) Second round of QE and early post-crisis easing (2010-2012): Cryptocurrencies already existed but on a very small scale

As the Fed entered the next phase of crisis-era easing, Bitcoin had begun trading—but it remained a small-scale, retail-dominated experiment. During this period, any “relationship” between liquidity and cryptocurrency prices was heavily influenced by effects like broad adoption (market from zero to presence), exchange infrastructure maturation, and pure discovery volatility. Therefore, it cannot be regarded as a clear macro signal.

3) Third round of QE (2012-2014): First comparability overlaps, but noise persists

This was the first time “sustained balance sheet expansion” could be compared with an actively trading crypto market. The problem is the sample size was still small, and mainly affected by crypto-specific events (exchange failures, custody risks, microstructure issues, regulatory shocks). In other words, even if QE overlapped with crypto markets, the signal-to-noise ratio was low.

4) Long-term stability and normalization (2014-2019): Cryptocurrencies grew in a world not characterized by daily QE

This is the forgotten part. For a long period after the third QE, the Fed’s balance sheet remained relatively stable, then attempted to shrink. During this time, cryptocurrencies still experienced significant cyclical volatility—warning us not to simply equate “printing money” with crypto price rises. Liquidity matters, but it is not the sole driver.

5) Pandemic easing period (2020-2022): The most important data point, and also the most dangerous overfitting point

This period is memorable because it vividly demonstrated the phenomenon of “liquidity flooding but yields nowhere,” and the crypto market responded strongly. But it was also a special period defined by emergency policies, fiscal shocks, stimulus checks, lockdown-induced behavioral shifts, and global risk resets—not a normal pattern. (In other words: it proved the existence of the phenomenon, not a universal law.)

6) Quantitative tightening (2022-2025) and the “technical” return to bond purchases (end of 2025): The situation becomes more complex, not simpler

Starting in 2022, the Fed began reducing its balance sheet via (QT), then stopped QT earlier than many expected, with policymakers indicating support for ending the process.

Just last week, the Fed announced it would purchase about $400 billion of short-term government bonds starting December 12—explicitly described as reserve management/market stability operations, not a new round of stimulus.

This distinction is crucial for how we interpret crypto reactions: markets typically trade on the direction and marginal changes in liquidity conditions, not the labels we assign.

So far, the conclusion is: since cryptocurrencies became a real market, we have only a few relatively “clean” liquidity environments to study—and the most influential (2020) was also the most unusual. But this does not mean that the idea of QE is wrong. Rather, it is probabilistic: a loose financial environment tends to favor long-term, high-beta assets, and cryptocurrencies are often the purest embodiment of this phenomenon. But when we analyze the data deeply, we must distinguish four factors: (1) balance sheet expansion, (2) rate cuts, (3) dollar trends, and (4) risk sentiment—because they do not always change in sync.

First, it’s important to understand that markets rarely wait for liquidity to arrive. They often start trading policy directions long before the data reflects the policy mechanisms. Cryptocurrencies are especially prone to this—they tend to react to expectations, such as shifts in policy tone, signals from balance sheet policies, and anticipated changes in interest rate paths—rather than to the slow, gradual impact of actual asset purchases. That’s why crypto prices often lead yields decline, dollar weakness, and even precede any substantial expansion of the Fed’s balance sheet.

Clarifying what “quantitative easing” means is critical. Easing is not a single variable; its various forms have different impacts. Rate cuts, reserve management, balance sheet expansion, and broader financial conditions often follow different timelines and sometimes move in different directions. Historical data shows that cryptocurrencies respond most consistently to actual declines in real yields and easing financial conditions—not just bond purchases per se. Viewing QE as a simple switch risks oversimplifying a much more complex system.

This subtlety is important because the data supports a directional relationship, not a deterministic one. An easing financial environment increases the probability of positive returns for long-beta assets like cryptocurrencies, but it does not guarantee timing or magnitude. In the short term, crypto prices are also influenced by market sentiment and leverage—factors that depend on macro policies, positioning, and leverage levels. Liquidity helps, but it cannot override all other influences.

Finally, this cycle is fundamentally different from 2020. No emergency easing, no fiscal shocks, no sudden yield plunge. What we see is only marginal normalization—after a long period of tightening, the system environment has become slightly more accommodative. For cryptocurrencies, this does not mean prices will immediately soar, but it signals a changing market environment. When liquidity ceases to be a barrier, assets at the far end of the risk curve often perform well because the market environment ultimately allows it.