Fed Secretly Buys $43.6B Treasuries in May, Hinting at Hidden QE and Lifting Bitcoin
In May, the US Federal Reserve undertook its largest Treasury market intervention since 2021 by covertly purchasing $43.6 billion in US Treasuries, departing from its stated quantitative tightening policy. This move came after the Treasury Department was unable to sell the full $150 billion in planned government bonds, resulting in a $72 billion shortfall. Market analysts interpret the Fed’s actions as a form of hidden quantitative easing aimed at stabilizing market liquidity and preventing increased volatility. At the same time, Moody’s downgraded the US credit rating to AA1, meaning the US has lost the highest AAA rating across all major agencies. This downgrade could drive Treasury yields higher and raise government borrowing costs.
Crypto traders are closely monitoring these developments, as monetary expansion and a weakening dollar tend to boost appeal for risk assets like Bitcoin, Ethereum, XRP, and Solana. The short-term crypto market outlook appears bullish due to potential liquidity inflows and declining confidence in traditional financial assets. However, significant uncertainty remains regarding the long-term impact, as further moves by the Fed and ongoing fiscal and regulatory changes will shape broader market risk and volatility. Traders are advised to stay vigilant, especially around future US monetary policy announcements.
Bullish
The Federal Reserve’s covert Treasury purchases and the credit rating downgrade have led to increased expectations of liquidity expansion and diminished confidence in the US dollar and traditional safe-haven assets. Historically, such policies have fueled rallies in cryptocurrencies like Bitcoin due to their finite supply and risk-on characteristics. In the short term, these developments are likely to drive positive sentiment, increasing buying activity in major cryptocurrencies. However, the long-term impact remains nuanced, hinging on future Fed actions and evolving economic conditions. Nevertheless, current market dynamics suggest a bullish trend for crypto assets, making them attractive to traders seeking to hedge against inflation and financial instability.