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The U.S. Federal Reserve’s balance sheet follows a familiar pattern: it surges during crises and is cautiously wound down in calmer times. However, according to analysts, the greatest danger lies not in the balance sheet’s size, but in the slow pace at which monetary policy impacts the economy. What effect does this have on the bitcoin price?
BREAKING: The Federal Reserve’s balance sheet fell -$37 billion in November, to $6.53 trillion, to its lowest level since April 2020.
The Fed has reduced its assets by -$2.43 trillion, or -27%, during its quantitative tightening (QT) program, which ended on December 1st after… — The Kobeissi Letter (@KobeissiLetter) December 7, 2025
The Forgotten Effect of Lag #
After two years of quantitative tightening (QT), the central bank’s balance sheet is back around early 2020 levels, significantly larger than before the coronavirus pandemic. This isn’t because the economy has fully recovered, but because policymakers believe further reductions could create risks.
The COVID-19 period offers the clearest lesson. It was followed by one of the largest stimulus packages in modern American history, including:
- Zero interest rates and massive QE
- Direct stimulus checks
- Generous unemployment benefits
- Rent and mortgage pauses
- Child tax credits
- Aid to businesses via PPP loans
In total, the support amounted to roughly 25% of U.S. GDP. Yet, it took nearly two years for inflation to rise significantly. The effect of stimulus measures only becomes visible as money trickles through businesses, consumers, and credit streams, and that takes time.
Why Rate Cuts Won’t Offer Immediate Relief #
This is why many economists are skeptical about the idea that rate cuts or new QE can quickly alleviate current stress levels. The lag effect is substantial, and the situation is different from 2020:
- Households are financially tighter
- Payment arrears are increasing
- Bankruptcies are rising toward a 15-year high
- Small businesses are depleting their reserves
- Political appetite for massive support is virtually absent
- Room for new mega-programs is limited by inflation and budgetary pressure
Rate cuts are almost certain, and QE eventually too, but the focus will be on alleviating pain, not reversing it. The economic effect will come later, not immediately.
Impact on the Bitcoin Price #
For bitcoin, this delay presents a dual scenario:
In the short term: If the economy weakens further, risk-off sentiment could keep capital out of crypto. The lack of immediate monetary support could put pressure on speculative assets, especially as liquidity decreases.
In the longer term: Once rate cuts take shape and QE eventually returns, that could become the fuel for a new crypto run, as previous cycles have shown. Because monetary easing works with a delay, bitcoin may only move later, possibly with a strong reaction once liquidity flows back into the system.
The question, therefore, is not if support will arrive, but when, and how long the economy can endure the delay.