Dovish Fed Shift Could Ignite Crypto Markets in Q4

The cryptocurrency market may be heading for its strongest rally of the year as the U.S. Federal Reserve’s dovish tone opens the door to monetary easing and a return of risk appetite across digital assets. Tuesday’s remarks by Fed Chair Jerome Powell restored confidence among crypto investors, as the likelihood of interest rate cuts continues to rise. Powell openly acknowledged the growing risks of rising unemployment, a clear signal that the central bank is preparing to loosen its policy stance.

Powell Hints at Policy Shift “Rising risks to employment have shifted our assessment of the balance of risks,” Powell said.

“At our September meeting, we concluded that it was appropriate to take another step toward a more neutral policy stance,” he added. According to CME FedWatch data, markets now see a 95.7% chance of a 25-basis-point rate cut on October 29, while the probability of a similar move in December stands at 94.8%, implying a total reduction of 0.5% by year-end.

End of QT Gives Bitcoin a Tailwind Powell also hinted that quantitative tightening (QT) — the process of shrinking the Fed’s balance sheet — is nearing its end.

That would mean more liquidity in the system and a potential boost for risk assets, including cryptocurrencies. “We’ve got a fully dovish Fed already pricing in 125 basis points of cuts and preparing to end QT,” said Bitcoin analyst Joe Consorti.

“Bitcoin has been stuck in a narrow range since May. We all know what comes next.” QT is the opposite of quantitative easing (QE) — instead of injecting money by buying securities, the Fed lets them mature without reinvestment.

Ending QT effectively loosens financial conditions and historically has supported Bitcoin rallies when interest rates fall below 3%.

Cautious Markets, But the Setup Is Clear Despite Powell’s dovish tone, crypto markets remain cautious after suffering one of the biggest liquidation waves of the year over the weekend. Total crypto market capitalization fell below $4 trillion, as Bitcoin dropped under $110,500 on Tuesday before recovering to $112,500 during early Asian trading on Wednesday. Ethereum also slipped below the $4,000 level, later rebounding to $4,120.

Most altcoins remain under pressure, though some have shown early signs of recovery.

JPMorgan: “Fed Has Officially Confirmed Its Shift” According to JPMorgan chief economist Michael Feroli, Powell’s remarks officially confirm a shift in the Fed’s stance:

“Today’s statement strongly reinforced expectations that the Fed will cut rates at its next meeting. It’s a clear signal of a move toward a more accommodative policy.” For the crypto market, this represents a significant change in environment — lower rates and the end of QT could spark a year-end rally, similar to what occurred during the easing cycles of 2019 and 2020.

Outlook: The Wind Is Turning in Crypto’s Favor The Fed is signaling that its tightening cycle is over.

The combination of lower interest rates, the end of QT, and a stabilizing labor market could create the perfect setup for renewed bullish momentum in digital assets. While the market’s immediate reaction remains muted, institutional investors are quietly positioning themselves for what could be a strong fourth quarter for crypto.

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