Bitcoin Price Drops 10% on ETF Outflows, Ignoring Fed’s New Liquidity Shift

The Fed has signalled , a big change in monetary policy. After reducing its asset portfolio from nearly $9 trillion down to about $6.6 trillion, the central bank stated it will stop this reduction and start reinvesting money from bonds that are paid off, effectively putting its quantitative tightening (QT) on hold.

At the same time, the Fed injected about $29.4 billion into the banking system via its standing repo facility (SRF) on October 31, the largest such operation since the pandemic. Officials stated the move was a direct response to rising pressure in funding markets, as the cash reserves held by banks fell close to $2.8 trillion.

For crypto markets, analysts view this as a possible catalyst for a renewed Bitcoin rally. With liquidity drying up during QT, risk assets like Bitcoin had trouble performing well. Now that the trend is reversing, it could pave the way for new money to flow back in.

In other words, when the Fed stops pulling money out of the economy, investors may start looking for better returns again, making cryptocurrencies a more attractive option.

Over the last four days, spot Bitcoin ETFs have suffered heavy outflows of over $1.34 billion. This suggests that big investors are still hesitant, even with the Fed changing its stance. As such, it seems that while the Fed appears to be on the verge of loosening, capital in crypto isn’t yet flowing back at scale.

For Bitcoin, this might mean the expected flood of new capital hasn’t started, creating a period where traders anticipate the move but the actual flows are still pending.

Lately, Bitcoin has been in decline, dropping roughly 10% in the last 7 days and around 2.5% in the past 24 hours.

In fact, the entire crypto market isn’t doing too well lately, with all major altcoins suffering losses up to 5% in the last 24 hours and more in the last 7 days.

Still, a resurgence in market liquidity, combined with renewed capital flows into ETFs, has the potential to quickly push prices higher again.