The Fed's balance sheet reduction drama has come to an end.

Officials have been hinting frequently lately that balance sheet expansion is now inevitable. Some institutions predict that as early as next week’s rate meeting, there could be an official announcement—the launch of a reserve management purchase program, with $2 billion in short-term Treasuries bought each month. More crucially, the liquidity injection in early December was the largest since the 2020 pandemic. Once this kind of operation begins, history tells us: it’s hard to stop.

Looking back at the month after October 11, market sentiment was like a disaster movie scene. In those 29 days, the fear index barely calmed down—such sustained fear is rare in history. Many people see fear as a bearish sign, but from another perspective: major players use this extreme sentiment to shake out weak hands. They wear down retail investors until they’re numb, until they don’t even dare to think about a rebound—only then does real turnover happen.

This Bitcoin correction wasn’t as severe in terms of percentage drop as the previous two 30% pullbacks, but the panic lasted longer and the emotions ran deeper. Why? Because the shakeout logic has changed.

For the crypto market, what does this Fed combo mean? US dollar liquidity is about to be released on a large scale. The crypto space, as a typical risk asset pool, is extremely sensitive to changes in funding. After a flood of US dollars enters the market, a portion will inevitably spill over into digital assets—this could be the starting point of a new capital cycle.

The market has never lacked drama; what it lacks are people who can read the script.