The two liquidity operations by the Federal Reserve at the end of the year were synchronized on December 31, injecting $74.6 billion into the market while absorbing approximately $106 billion of excess funds through overnight reverse repurchase agreements. On the surface, these are routine operations aimed at stabilizing liquidity, but for the crypto market, the impact is not as direct as one might imagine.

In the short term, the liquidity injection should support the rise of risk assets. Many institutions have indeed interpreted this as the Fed protecting the market. The problem is that these new funds mainly circulate within traditional banking and institutional frameworks, with only a limited portion actually flowing into the crypto market. Additionally, crypto ETFs are still experiencing outflows at year-end, and global stock markets are reallocating high-risk appetite funds. Mainstream cryptocurrencies like Bitcoin have continued to decline after the news was released.

Looking at the long term, this normalized liquidity management does reveal signals that the Fed’s balance sheet may expand. Although the scale is far from the aggressive easing seen in 2020-2021, lowering interest rates and gradually increasing market risk appetite can still provide some support for crypto asset valuations.

However, there is a risk that cannot be ignored—the crypto market itself is facing the pressure of large-scale token unlocks and structural outflows of funds. These endogenous issues may continue to weaken the effectiveness of loose monetary policy.