Analyst warns key Fed decision could reprice crypto after Michael Burry's alert

With quantitative tightening now over, the Federal Reserve has confirmed it will buy around $40 billion in short-term Treasury bills per month.

Fed officials framed this move as a “technical” step to keep the plumbing of the financial system running smoothly, according to a Dec. 10 statement and press conference. 

The combination of ending QT and restarting bond purchases is something markets have not seen since 2021 - the last time a major crypto bull wave took off.

Historically, when central banks add liquidity, risk assets such as tech stocks and cryptocurrencies often move first, even if Bitcoin (BTC) is still stuck below resistance for now.

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Fed’s $40B T-bill shift revives liquidity trade

Starting Dec. 12, the Fed will begin so-called “reserve management purchases” of Treasury bills, buying about $40 billion per month to keep bank reserves “ample,” according to the latest policy announcement.

Chair Jerome Powell stressed the move is not meant as a new stimulus program, saying the buying is “solely for the purpose of maintaining an ample supply of reserves over time, thus supporting effective control of our policy rate.”

Even if the intention is technical, the effect is the same in the short term:

• The Fed’s balance sheet, which had been shrinking since 2022, will start expanding again.
• Net T-bill supply available to private investors goes down.
• More cash sits in the system, which can push investors further out on the risk curve.

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Burry warns Fed lifeline shows banks ‘getting weaker way too fast’

Investor and short-seller Michael Burry, who famously called the 2008 housing crisis, argues this is not a position of strength for the banking system. 

Reacting to the new program, Burry wrote that the Fed is now buying “$40 billion of bills a month” under a new acronym, RMPs, and questioned what it says about the system’s health.

In his words, “if the US banking system can’t function without $3+ trillion in reserves… that is not a sign of strength but a sign of fragility.”

He noted that reserves were about $45 billion in 2007, roughly $2.2 trillion before the 2023 banking stress, and that temporary programs like the Bank Term Funding Program (BTFP) effectively became “load-bearing” support. 

Burry warned that after every crisis, the Fed must expand its balance sheet again “or guarantee a bank funding crisis,” adding that this helps explain why stocks keep climbing.

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He also highlighted how he personally took positions for that risk, saying he does not follow TV advice to buy bank stocks and instead keeps large cash balances in Treasury money market funds above the $250,000 FDIC limit.

Looking further ahead, Burry even floated a “practical limit” where the Fed could end up effectively owning the entire $40 trillion US bond market, joking, “So party on, I guess.”

Fed liquidity shift could ignite a risk-on wave crypto hasn’t priced in

While Bitcoin has been trading sideways near $90,000, some market participants say the broader backdrop already looks like a full risk-on environment.

CNBC crypto trader Ran Neuner pointed to several signals in a Dec. 11 post, writing, 

“The market is now in FULL risk-on mode and most people aren’t seeing it because Bitcoin isn’t moving.” 

He highlighted:

• Silver pressing all-time highs, historically a “beta” trade on gold.
• ETH/BTC breaking above its 50-week moving average, often seen as Ethereum leading risk appetite within crypto.
• The Russell 2000 small-cap stock index breaking out, which traders view as a classic risk-on equity gauge.

Neuner argued that with the Fed having “turned the money printer on” and pivoted earlier than many expected, sellers in Bitcoin may eventually dry up and a “catch-up trade” could follow as crypto starts to reflect the new liquidity backdrop.

For now, the reaction remains measured. 

At press time, the global crypto market cap stands around $3.16 trillion, up roughly 2.4% over the past 24 hours. Bitcoin (BTC) trades near $90,060, gaining about 2.1% on the day, while Ethereum (ETH) changes hands around $3,200, up about 3.7%

Related: Wall Street sells Bitcoin ahead of Fed's key decision