To The Moon

With Fed chair signalling QT may come to an end to avoid excessive liquidity tightening harming economic growth, are we seeing the bull run coming to a stop for highly liquidity-sensitive assets?

We might say that it is quite possible that we’re entering a more choppy / less linear bull-run phase for equities, and that the crypto sector — which is very sensitive to liquidity — could see sharper swings. But the dynamics are nuanced. Here is a breakdown:

What Powell / Fed Signalling Means for Equities

QT nearing its end is a dovish pivot

• Fed Chair Powell recently said that the balance-sheet drawdown (QT) “may be approaching” its end in coming months.

• If the Fed stops shrinking its balance sheet, that effectively halts further liquidity withdrawal from markets, which could ease pressure on rates / credit.

The “liquidity plug has limits”

• Even if QT ends, it doesn’t automatically mean a flood of new liquidity — it just stops the drain. Rate cuts (if they come) would be the next step to re-expand accommodative policy. Powell has left no guarantee of a rapid cut, preferring a meeting-by-meeting, data-dependent approach.

• So markets may rally in anticipation, but if inflation / growth surprises disappoint, the patience might wear thin.

Bull run may lose momentum / become more volatile

• In past cycles, once the central bank shifts from aggressive tightening to “pause / gradual easing,” the strong bull phase often transitions into a more moderate, volatile uptrend, with rotations and bouts of pullbacks.

• But rather than a straight, steep climb, we could see more range-bound behavior, sector rotation, and sensitivity to data surprises.

Valuation multiples get tested

• In a lower growth / higher cost of capital environment, equity valuations become more fragile, especially for “growth” / high multiple names. Even in a “liquidity pause” regime, companies will need strong fundamentals to justify premium multiples.

Implications & Risks for Crypto (Liquidity-Sensitive Assets)

High sensitivity to liquidity conditions

• Crypto is very responsive to changes in capital flows and liquidity. Some analysts treat Bitcoin (and other top cryptos) as “liquidity barometers.”

• When capital is abundant and risk appetite is high, crypto tends to benefit strongly. When liquidity tightens or global risk increases, crypto often suffers outsized downside.

Leverage, margin calls, and auto-deleveraging risk

• Because many crypto participants use leverage or derivatives, any sudden shock (e.g. shift in interest rates, surprise macro data) can trigger cascades of liquidations. Indeed, recent volatility episodes in crypto have often been amplified by forced deleveraging.

• That makes the downside risk more asymmetrical in stressed scenarios.

Regulatory and structural overhangs

• Crypto already operates under regulatory uncertainty; a more fragile liquidity environment may exacerbate fears, lead to capital flight, or trigger tighter oversight. For example, stablecoin risk, regulatory scrutiny, or contagion across digital assets could magnify stress.

Volatility likely to increase

• Even if major crypto assets like Bitcoin hold up, we should expect sharper intra-day swings, fatter tails, and more frequent regime shifts. Markets may see more episodes of panic drops or flash crashes rather than steady climbs.

Decoupling is possible — but fragile

• In some periods, crypto may decouple positively (if risk appetite resurges). But those decouplings tend to be short-lived unless backed by strong fundamentals, broad adoption, or institutional flow stability.

Our View & What to Watch

We do not think the equity bull is “over” yet. The end or pause of QT could stabilize markets and support further gains, but the path is likely to be bumpier.

For crypto, I expect greater volatility and more downside risk in adverse macro / liquidity shock events. The upside remains possible if policy pivots more aggressively dovish, but the risk-reward is more skewed now.

Key things to monitor:

• Fed commentary & minutes (especially about balance sheet, liquidity, interest rate path)

• Macro surprises (inflation, employment, growth)

• Credit spreads, money market stress, repo rates (as proxies for liquidity tightness)

• Institutional capital flows into/out of crypto and crypto derivatives metrics (open interest, funding rates)

• Regulatory headlines in crypto space

In the next section, we build a scenario-based outlook model to see how equities and major cryptocurrencies (BTC, ETH) might behave under three distinct Fed and liquidity paths over the next 3–6 months.

Here we will define three macro setups and then estimate expected liquidity tone, equity direction, crypto response, volatility, and market leadership.

SCENARIO OVERVIEW (Late 2025 Outlook)

MARKET TRAJECTORY MATRIX

$Cboe Volatility Index(VIX)$

Interpretation

Scenario 1 (Liquidity Shock):

This mirrors a short-term liquidity crunch — such as a funding market hiccup or a new inflation scare. Equities could sell off sharply, crypto sees outsized drawdowns (BTC ≈ –25%), and USD strengthens. Think mini-2022 replay.

Scenario 2 (Fed Dovish Pivot):

The most bullish setup. Ending QT and signaling early-2026 rate cuts injects liquidity back into risk assets. Equities rally broadly; crypto outperforms as global M2 growth re-accelerates. Volatility compresses, leadership returns to tech and growth.

Scenario 3 (Stable Growth / Plateau):

Markets consolidate after strong YTD gains. Equities stay resilient but capped; crypto trades in range with periodic spikes. Sector rotation (industrials, energy) offsets tech fatigue — this is a “carry and quality” market rather than a breakout one.

Summary Table: Expected 3–6 Month Returns

$S&P 500(.SPX)$ $NASDAQ(.IXIC)$ $Gold - main 2512(GCmain)$ $SPDR Gold Shares(GLD)$ $iShares Gold Trust(IAU)$

Takeaway

Base case (Dovish Pivot / Stable Growth blend): markets retain a mild upward bias, but the easy liquidity-driven rally phase is likely over.

Crypto remains the highest-beta liquidity trade: its reaction will exaggerate whatever the Fed does next.

Expect rotation, higher dispersion, and tactical volatility rather than a one-way bull run.

Here is the risk–return scatter plot comparing equities, crypto, and gold under the three liquidity scenarios.

Interpretation:

• The Fed Dovish Pivot (top-right cluster) offers the most favorable risk–reward for both equities and crypto, though crypto carries far higher volatility.

• Liquidity Shock (bottom-left) shows steep downside risk, especially for Bitcoin and Ethereum.

• Stable Growth sits near the middle — modest equity returns with balanced risk.

Essentially, crypto remains the highest-beta liquidity play, while gold provides stability across scenarios.

Summary

Fed Chair Powell’s signal that Quantitative Tightening (QT) may soon end reflects concern that further liquidity withdrawal could strain funding markets and slow growth. While this pause reduces the risk of a hard landing, it also suggests the liquidity-driven phase of the equity bull run may be peaking. Equities may shift from broad gains to more selective, rotation-driven performance, favoring quality and earnings visibility over speculative growth.

For the cryptocurrency sector, the implications are more volatile. Cryptos like Bitcoin and Ethereum, which thrive on abundant liquidity and risk appetite, may experience short-term turbulence as markets adjust to a flatter liquidity profile. However, if the Fed’s stance evolves into a dovish pivot—pausing QT and hinting at future rate cuts—crypto could rebound sharply.

In short, the end of QT marks a transition rather than a stop: equities may consolidate after strong gains, while crypto faces heightened short-term swings before potentially benefiting from renewed policy support.

Appreciate if you could share your thoughts in the comment section whether you think market will see a pump after FOMC, borrowing last year playbook.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.