The end of QT itself is indeed a liquidity positive, but whether this positive can actually materialize depends on real fund flows and the Federal Reserve's next attitude.
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What to Do
Understand the key variables on the logic chain of "QT ends → Bitcoin rises," and apart from the end of QT itself, what other fund signals need to be watched.
Concept Breakdown
First, sort out the facts: the Federal Reserve's quantitative tightening (QT) officially ended on December 1, 2025. The operation that lasted more than three years and cumulatively withdrew about $2.2 trillion from the balance sheet has stopped.
The direct reason for ending QT was that bank reserves had fallen to a critical line of "slightly above ample levels." The overnight reverse repurchase facility (ON RRP) dropped from a peak of $2.5 trillion to near zero, losing its buffer function for absorbing excess liquidity. Continuing to shrink the balance sheet would directly squeeze bank reserves and could trigger a repo market crisis similar to 2019.
After QT ends, the Federal Reserve will reinvest all principal payments from maturing Treasury securities and MBS into short-term Treasury bills (T-bills), equivalent to injecting about $4.5 billion of liquidity into the market each month. Goldman Sachs estimates that in 2026, the Federal Reserve may purchase about $480 billion in Treasury bills through reserve management and MBS reinvestment.
These operations are officially defined as "technical balance sheet expansion" or "reserve management purchases" (RMP), not a restart of QE, but the direction has indeed shifted from "draining water" to "adding water."
Three Pools of Funds to Watch
First: Bank Reserve Balances
When QT ended, bank reserves were about $2.9 trillion, below the "ample" comfort zone identified by the Federal Reserve. After the Fed launched RMP, reserves began to recover. As of early August 2026, total assets stabilized at about $6.75 trillion.
If reserves continue to recover, it means the "water replenishment" is working; if the recovery stalls or declines again, the liquidity improvement is a false proposition.
Second: SRF (Standing Repo Facility) Usage
This is a key reverse indicator. A surge in SRF usage means financial institutions are urgently borrowing money from the Federal Reserve, indicating that liquidity pressure still exists in the system. After QT ended, SRF usage once hit the second-highest level since 2020, indicating that the transmission channels in the funding market have not yet been fully unblocked.
Third: Treasury Yield Curve
The end of QT brought the 10-year Treasury yield down from 4.28% to 4.08%, and the yield curve flattened—a decline in long-end rates is positive for risk assets. But if long-end yields rise again, it means the market is once again worried about fiscal deficits and inflation, and the effect of liquidity improvement will be offset.
Inferences for Different Scenarios
| Observation Indicator | Bullish Signal | Bearish Signal |
|---|---|---|
| Reserve Balances | Continue to recover above $3 trillion | Stall or fall back |
| SRF Usage | Continue to fall back to normal levels | Stay elevated or hit new highs |
| 10-Year Treasury Yield | Stay below 4% and continue falling | Rise back above 4.3% |
| RRP Balance | Stable near zero |
Key risk: In 2026, fundamental uncertainty emerged within the Federal Reserve. After new Chair Kevin Warsh took office, he established an independent working group to comprehensively review the "ample reserves framework." If the working group ultimately recommends further balance sheet reduction or restructuring the framework, QT could return in some form in 2026. More critically, the share of Treasury securities held by the Federal Reserve as a percentage of outstanding Treasury debt has fallen from a peak of 19% in 2021 to about 11.2%. This structural change means the Fed's ability to "backstop" the market is declining.
Next Steps
Open FRED data and check whether the Federal Reserve's balance sheet size remains above $6.7 trillion and whether bank reserves continue to recover.
Monitor the SOFR-IORB spread—if the spread suddenly widens, it means money market pressure is building, and liquidity "replenishment" may not keep up with demand.
Watch for the Warsh working group's mid-2026 report. If the report advocates maintaining the current size, it is positive; if it advocates gradual balance sheet reduction, it is a major macro headwind.
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FAQ
Q: Does the end of QT count as QE?A: No. Ending QT is stopping the contraction, while QE is active expansion. The two are fundamentally different. But technical balance sheet expansion (RMP) increases purchases by about $4.5 billion per month, which does improve liquidity conditions at the margin.
Q: Why hasn't Bitcoin risen even though QT has ended?A: Two points. First, liquidity improvement takes time to transmit, and it is not like flipping a switch. Second, the positive from QT ending has been offset by uncertainty from the Warsh working group, and the market is waiting for a clear direction.
