The Federal Reserve was found to have quietly executed a $43.6 billion purchase of US Treasuries in May. This move was interpreted by some market participants as "secret quantitative easing (QE)," which indirectly increased the money supply. Bitcoin seems to have benefited from the quantitative easing, surging to $106,000 before the US stock market opened on Monday (May 19), but then the price fell back.
According to MarketWatch, the Federal Reserve purchased a total of $43.6 billion in US government bonds during the week of May 8, when the market did not widely expect this. This operation contrasts with the Federal Reserve's ongoing asset balance sheet reduction (quantitative tightening) policy since June 2022, with the balance sheet currently around $6.7 trillion.
Morningstar's report echoed this observation, noting that the Federal Reserve has quietly done something significant - over the past four days, it has silently absorbed $43.6 billion of US Treasuries. On May 8 alone, the Federal Reserve absorbed $8.8 billion of 30-year bonds, plus $34.8 billion earlier this week.
"This is not a small amount," the article emphasizes.
Silently returning to the trough of quantitative easing is not the standard practice of the Federal Reserve - it's like a bank robber returning to the scene because they forgot the car keys.
Frankly, this is not a tightening policy but an invisible easing policy, a cautious monetary policy. Some traders have already begun to notice this, and smart investors should do the same.
The market is most concerned about why the Federal Reserve has secretly started buying US bonds again.
Analysts found that on May 9, the US Treasury attempted to auction $150 billion in bonds but ultimately sold only $78 billion, with a shortfall of $72 billion. To avoid exacerbating volatility in the bond market, the Federal Reserve intervened to fill the gap.
Worryingly, international credit rating agency Moody's announced last Friday that it had downgraded the US credit rating from the highest AAA level to AA1, officially stripping the US of the AAA rating from the three major rating agencies (Fitch and S&P had already downgraded it, with Moody's being the latest).
Analysts warn that the current market is extremely fragile. Without significant economic positive news to boost the safe-haven demand for US bonds, US bond yields may rise further due to rating downgrades.
The decline in purchasing power for US bonds reflects growing concerns about the US's ever-expanding debt and deficit. Although it may not yet be a panic moment, it is clearly a potential warning sign. This also increases the borrowing costs and pressure on the US government, which is undoubtedly one of the phenomena that President Trump most dislikes.
Under the backdrop of this "secret quantitative easing" by the Federal Reserve, the global risk market saw a rebound in May, especially cryptocurrencies like Bitcoin rising the most. With the weakening attractiveness of the dollar, some analysts believe that the Federal Reserve's low-key and unexpected operations may further accelerate the rise of crypto assets.
However, it should be noted that the exact motives behind the current short-term boost and its long-term impact on the market remain unknown. In the complex and changing global economic landscape, the market outlook still holds great uncertainty.
Observing market changes, the Trump administration also took action over the weekend.
Chinese crypto analyst Phyrex Ni wrote on Twitter: "Bitcoin almost broke through to $106,000, but there is no reason showing why Bitcoin can rise so happily. Looking at the details from Trading View, the rise of Bitcoin started at 21:37 Beijing time."
"And this time happens to be when the 79th US Treasury Secretary Bessent (Scott Bessent) is speaking. Of course, some friends might say this is a forced angle, but at least this is the closest reason I found for the rise."
"So what did Bessent say that would drive Bitcoin's rise? The main point is the information about US debt and GDP. As we all know, Moody's downgraded the US credit rating after the market closed last Friday, dropping the US from the Aaa level to the Aa1 level. This is a blow to the confidence in US bonds, and the main reason for the downgrade from the three agencies is precisely the 'US debt.'"
He emphasized that Bessent must come out to boost the market during the holidays, especially since the US stock and bond markets will open on Monday. Therefore, the first thing Bessent talks about is the GDP issue, believing that the economic development of the United States is very good, and with the handling of tariff issues, the GDP growth rate will be faster than the debt growth rate. In simple terms, the United States will not fall into a debt crisis.
He continued: "The key point is that Bessent explained that the goal of the US stock market is not to decouple but to open the market and restore balance. The US will continue to trade, particularly in non-strategic goods, and at lower tariff levels."
"At the same time, efforts will be made to bring back key industries such as pharmaceuticals, semiconductors, and steel to protect the national security interests of the United States. It also reiterated that Trump's grand plan can alleviate the burden on working families and businesses, promoting economic growth. Moreover, it believes that tax cuts will lead to deflation, which can combat inflation and restore the US's energy dominance."
"He also announced that Trump obtained a $2 trillion investment commitment from the Middle East, which will promote US employment, innovation, and long-term growth. Of course, there are also issues like illegal immigration, but their relation to the economy is becoming less significant. By this point, it should be the peak of Bitcoin's rise, because the market indeed hopes to believe that Trump can govern the US better."
"If I'm not mistaken, this is the main reason Bitcoin can rise, almost entirely coming from investors' trust in the Trump administration, rather than from Bitcoin's own narrative. More importantly, the US stock market is currently closed, liquidity is not very good, and trading volume does not show a significant increase compared to traditional weekends."
"Of course, I'm not saying that Bitcoin will drop next, but the rise and fall of Bitcoin will still be highly consistent with US politics, tariffs, monetary policy, etc. The current rise may not truly represent a very good result in the short term. Of course, I could be wrong; this is not a reason to open a position."
He concluded: "Currently, Bitcoin is still driven by events."
