Bitcoin has been moving higher after a few weeks of ups and downs. Since the first of December the price has climbed about twelve percent. This comes as signs show inflation in the United States may be cooling. Real time data shows inflation at about two point four five percent year over year. Official reports show the consumer price index near three percent. This slower pace makes traders expect that the central bank could slow or pause rate hikes in the near future.
The timing of Bitcoin’s rise matches the end of the Federal Reserve’s Quantitative Tightening on the first of December. QT had been steadily reducing liquidity from the financial system. This means less money in banks and markets. With the shutdown of QT the mechanical removal of money stopped. While the central bank has not started new quantitative easing the pause removed pressure from liquidity and gave markets room to breathe.
Looking at the Fed’s balance sheet shows how big the shrink was. Total assets peaked near eight point nine seven trillion in twenty twenty two. By early December total assets fell to about six point five four trillion. This shows the central bank withdrew over two trillion dollars during the QT periods. November alone saw about thirty seven billion in runoff. At the same time short term repo facilities had zero usage. This indicates calm money markets and shows the Fed could stop shrinking its balance sheet without stress.
Bitcoins price responded quickly to these developments. After the end of QT the price moved up from around eighty three point five thousand to ninety three to ninety four thousand. Bulls defended the ninety thousand nine hundred level as near term support. Sellers slowed momentum near recent highs but the overall trend was upward. The four hour charts show a steady climb with some hesitation around local peaks. The movement shows that the market is reacting more to macro signals than to pure technical patterns.
Traders are also watching expectations for interest rate cuts. According to the FedWatch tool the chance of a twenty five basis point cut has risen to over eighty seven percent. Only a small number of traders expect rates to stay unchanged. If the Fed cuts rates and inflation keeps slowing Bitcoin could see easier conditions in the first and second quarters of next year. If the Fed does not cut rates the recent twelve percent gain may lead to sideways movement or consolidation.
Overall the main drivers for the December rally have been the easing of inflation and the end of QT. The market reacted quickly as traders priced in softer policy moves for next year. Bitcoin gained about twelve percent from its post QT low. The move shows that macroeconomic conditions and policy expectations remain important for price action.
Bitcoin is now trading in a range that reflects market caution but also optimism for future gains. Traders will continue to watch inflation data Fed decisions and overall liquidity conditions to see if the rally can continue in early twenty twenty six.
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