The apex bank, with the Federal Reserve boosting the economy with a new set of liquidity injections, is setting Bitcoin up for a rally.

The United States Federal Reserve is shrinking its balance sheet, which has sparked discussions about what this could mean for Bitcoin (BTC) and the broader financial market.

The latest data shows a significant reduction in Fed holdings, which is expected to increase liquidity, increase investor confidence, and keep interest rates steady.

Massive Shift in Federal Reserve Balance Sheet

According to a recent post by The Cubic Letter on X, the Federal Reserve’s balance sheet has shrunk by $17 billion in the past 30 days.



It is now at $6.7 trillion, the lowest since April 2020. That’s a total reduction of $2.3 trillion since the Fed began tightening in April 2022.

The reduction represents about 48% of the $4.8 trillion in assets the Federal Reserve purchased during its post-COVID response.

Currently, the Fed holds $4.2 trillion in U.S. Treasuries and $2.2 trillion in mortgage-backed securities.

In March, the central bank announced a slowdown in its monthly quantitative tightening (QT) rate.

It could get worse as it looks for alternative ways to prop up the economy, given that it left interest rates unchanged this week.

Notably, the bank reduced it to $40 billion from $60 billion, signaling a more cautious attitude going forward.

While these figures may appear technical, the more important implication is the apparent influx of liquidity into the mainstream market.

The Fed is adding money to the system, which can increase dollars in circulation and, therefore, their value. This often leads investors to look for other stores of value such as Bitcoin.

Inflation, Money Supply and Risky Assets

It is worth noting that BTC supporters are paying a lot of attention. For example, Darin Feinstein, co-founder of Core Scientific, recently shared on his X page that Bitcoin exists as a response to what he describes as unchecked money printing by the Federal Reserve and other central banks.

In his X post, Darren claimed that about 80% of today's $21.6 trillion US money supply was created without public oversight over the past 25 years.

This ultimately strengthens the idea that Bitcoin offers a transparent, decentralized alternative.

It is important to note that as the Fed tightens its policy, Bitcoin has attracted more attention from institutions. Between May 7 and 8, US Bitcoin ETFs saw inflows of $260 million over a two-day period.

Although $400–$600 million below last week's daily highs, the data from Foreside Investors shows growing confidence, especially as BTC crossed the $100,000 mark this week.

The effect of unchanged interest rates on Bitcoin

Following the May 7 FOMC meeting, the Fed resumed bond purchases as Chair Jerome Powell confirmed that interest rates would remain steady at 4.25%–4.5%.

Since the meeting, altcoins have shown strength, but analysts expect bitcoin's dominance to continue to grow.

The decision, which was in line with market expectations, sent both Bitcoin and altcoin prices slightly higher.

However, every risk asset benefits if the Federal Reserve's model of injecting liquidity into the market goes unchecked.

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