4E Observation: The Federal Reserve signals a dovish stance, Bitcoin breaks through 87,000, is the market about to reverse?

On Wednesday's meeting, the Federal Reserve decided to keep interest rates unchanged, in line with market expectations. At the same time, it announced a significant slowdown in the pace of balance sheet reduction (QT), easing market liquidity pressures.

Boosted by this, Bitcoin rose to $87,000, and Ethereum also returned above $2,000, with all top ten cryptocurrencies performing well. The total market capitalization of the crypto market reached $2.81 trillion, up 3.51% from the previous day.

Slightly Looser Policy, Fed Releases Dovish Stance

The Federal Reserve announced that it would maintain the federal funds rate in the target range of 4.25% to 4.50%, in line with market expectations. In response to concerns about inflation and economic slowdown, Powell reassured investors at the press conference that the risk of recession is low, inflation is temporary, the U.S. economy remains strong, and the job market is still solid.

What drew attention was Powell's subsequent announcement that starting in April, the Fed would slow down the pace of quantitative tightening (QT), reducing the monthly balance sheet reduction from $25 billion to $5 billion. Since the Fed initiated QT in 2022, it has withdrawn hundreds of billions of dollars from the market each month, totaling over $1.2 trillion, tightening financial conditions. Now, the reduction in liquidity recovery has been cut by 80%, signaling a loosening of policy.

Additionally, the Fed's "dot plot" indicates that there will still be two rate cuts by 2025, meaning that by the end of 2025, the federal funds rate will drop to 3.75%~4%, consistent with the dot plot from the end of December 2024. This suggests that the various changes since last December have not led the Fed to reduce its expectations for rate cuts, easing short-term market tensions over concerns about uncontrolled supply-side inflation.

Bitcoin Rebounds, Market Sentiment Neutral

Boosted by the Fed's decision and Powell's dovish remarks, the risk asset market saw a noticeable increase. In the U.S. stock market, the S&P 500 index rose by 1.07%, the Nasdaq index increased by 1.4%, and the Dow Jones rose by 0.92%, with technology stocks performing particularly well. The cryptocurrency market also rebounded, with Bitcoin's price breaking through $87,000 in the morning, up nearly 5% in 24 hours, and altcoins generally surged.

Notably, institutional investors seem to be abandoning bearish sentiment. Since early February, Bitcoin ETF funds have seen continuous net outflows, with Bitcoin's price dropping 11.4% over the past 30 days. However, this week, Bitcoin ETFs experienced net inflows for three consecutive days, totaling about $500 million, indicating that institutional investors are repositioning and may be preparing for potential gains.

According to Coinglass data, the current funding rates on mainstream CEX and DEX show that the crypto market has returned to a neutral stance, no longer fully bearish, but also not bullish, with market sentiment leaning towards neutrality in the short term.

Arthur Hayes also posted on social media that Bitcoin's bottom may have formed around $77,000, but the stock market could still face greater pressure before Powell fully shifts to support Trump's fiscal policies. He advised investors to "stay flexible and hold cash."

What’s Next for the Market?

Just as the FOMC revealed the latest monetary policy direction to the market, news came that Trump will deliver a "major update" on cryptocurrency strategy at tonight's Digital Asset Summit (DAS), potentially involving the expansion of national crypto reserves and optimization of regulatory frameworks.

DAS is an important forum where traditional finance intersects with crypto assets. Trump's choice to speak here indicates his intention to send clear signals about crypto policy to institutional investors and the traditional financial market, attracting more investors to enter. However, given Trump's history of "bluster," market expectations are not high.

Overall, the Fed's dovish turn injects a strong dose of confidence into the market, and the "emergency brake" on the balance sheet reduction, along with the potential policy benefits from Trump's DAS speech, may jointly support a short-term rebound in the crypto market. However, the "dose" of liquidity easing remains very restrained, and the medium to long-term trend still needs to focus on macroeconomic factors. April will be a key juncture, when tariff effects will fully manifest, and first-quarter GDP data will test economic resilience, with a series of data determining the Fed's further policy direction.

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