Is A Crypto Melt-Up Coming? Analyst Predicts Liquidity Surge As Fed Eases QT
The crypto market could be on the verge of a major liquidity-driven melt-up, according to respected market analyst VirtualBacon, who believes the Federal Reserve’s shift away from quantitative tightening (QT) will prove to be the most significant event of the year — even more impactful than Bitcoin’s halving or the approval of spot ETFs.
The End of QT: A Hidden Catalyst for Risk Assets
QT — the process by which the Fed reduces its balance sheet by letting bonds mature without reinvestment — has drained liquidity from global markets since 2022.
However, recent remarks by Fed Chair Jerome Powell suggest that QT may soon be paused or slowed, as the central bank grows cautious about tightening financial conditions too far.
VirtualBacon argues that this subtle shift could quietly unleash hundreds of billions of dollars in excess liquidity — the same kind of macro tailwind that fueled Bitcoin’s historic rally in late 2020 and early 2021.
“Everyone’s focused on halving and ETFs,” the analyst said in a post on X. “But the real driver is macro liquidity. Once QT ends, risk assets — especially crypto — will melt up fast.”
How Liquidity Affects Bitcoin and Ethereum
When the Fed injects liquidity or slows balance-sheet runoff, money often flows first into U.S. Treasuries and then into risk assets like stocks and cryptocurrencies.
Historically, these inflection points have coincided with major cyclical bottoms and subsequent bull runs in crypto.
Data from Glassnode shows that Bitcoin (BTC) supply held by long-term holders is near record highs, while exchange reserves have continued to decline — a sign that investors are preparing for higher prices.
Ethereum (ETH), meanwhile, has seen renewed on-chain activity and record staking inflows, indicating that capital rotation is already underway.
Macro Signals Point to a Thawing Liquidity Cycle
In addition to Powell’s remarks, several indicators point to an early-stage liquidity recovery:
- M2 money supply has flattened after two years of contraction.
- The U.S. Treasury’s General Account (TGA) is expected to inject liquidity into markets as it replenishes reserves.
- Real yields are showing signs of peaking, suggesting reduced pressure on speculative assets.
“If the Fed even hints at ending QT or moves toward balance-sheet neutrality, it’s a green light for Bitcoin,” said economist Lyn Alden in a recent macro briefing.
What a Melt-Up Could Look Like
VirtualBacon describes a “melt-up” as a synchronized, liquidity-fueled rally across risk assets — where capital rapidly shifts into crypto, equities, and commodities before inflation expectations rise again.
He forecasts that the crypto market could see a 50–70% surge in total capitalization in the months following an official QT slowdown, driven by:
- Renewed institutional inflows into spot Bitcoin and Ethereum ETFs,
- Rotation from stagnant equity markets into high-beta digital assets, and
- Aggressive retail FOMO once Bitcoin surpasses $120,000 and Ethereum approaches $5,000.
Risks Still Loom
While the outlook is bullish, analysts warn that volatility will remain high.
If inflation spikes again or geopolitical risks worsen, the Fed could be forced to resume tightening — a scenario that could quickly reverse gains.
Additionally, with record leveraged positions in both futures and options markets, any sharp correction could trigger cascading liquidations similar to those seen in early October.
Final Thoughts: The Calm Before the Liquidity Storm
VirtualBacon concludes that the end of QT may not just be a technical policy shift — it could represent the macro inflection point that redefines the 2025–2026 crypto cycle.
“Markets move on liquidity, not logic,” he emphasized. “Once the Fed stops draining the system, it’s game on for Bitcoin and everything tied to it.”
If his forecast proves correct, investors could soon witness one of the most dramatic liquidity-driven rallies in crypto history — a true “melt-up” before the next consolidation wave begins.
