Bitcoin Soars as Financial Conditions Improve; Analyst Foresees All-Time High by Q2

On Wednesday, Bitcoin broke through the $86,800 mark, experiencing a nearly 5% increase as investors reacted to indications of looser financial conditions from the Federal Reserve alongside rising expectations for a liquidity-driven market surge.

The Fed revealed plans to ease the pace of its $6.8 trillion balance sheet reduction, limiting the monthly runoff of Treasury securities to $5 billion, a significant decrease from the previous $25 billion.

This strategy aims to avert disruptions in funding markets amidst ongoing tensions regarding the debt ceiling.

Additionally, the central bank kept interest rates steady in the 4.25% to 4.5% range, while maintaining its forecast for two potential rate cuts later this year, despite ongoing worries about inflation.

The shift towards easier financial conditions seems to be boosting risk appetite. The U.S. dollar has experienced its third-largest decline over three days since 2015, accompanied by a sharp drop in Treasury yields and bond market volatility.

Jamie Coutts, Chief Crypto Analyst at Real Vision, mentioned that these changes could potentially pave the way for a significant Bitcoin rally within the upcoming 90 days.

“Historically, such signals have frequently foreshadowed substantial movements in Bitcoin,” Coutts remarked.

“With the PBoC increasing liquidity measures, the market may be underestimating how swiftly Bitcoin might surge—possibly reaching new all-time highs before the end of Q2—despite concerns surrounding Trump tariffs and the risk of recession,” he added.

In recent weeks, the People’s Bank of China has injected additional liquidity into its financial system, reinforcing a global trend towards easing that may bolster risk assets.

Simultaneously, the Federal Reserve’s decision to decelerate its quantitative tightening aligns with a broader narrative in the market suggesting that tightening cycles may be approaching their end.

Crypto traders have capitalized on these developments, driving Bitcoin upwards in tandem with gains observed in equities and technology stocks.

Ethereum also witnessed an increase, rising 3.2% to $2,209, according to CoinGecko data.

Nevertheless, uncertainties linger. Factors like inflation, geopolitical risks, and shifts in fiscal policy under President Trump could affect the Fed’s future decisions.

For the moment, however, traders seem to be betting that liquidity will remain abundant in spite of earlier analyses suggesting otherwise.