Ethereum Surges 13% on Fed's QT Slowdown, but Risks Remain
2min read Ethereum (ETH) experienced a significant surge following the Federal Reserve's decision to slow the pace of its quantitative tightening (QT) program. This move signaled to the market that a new wave of liquidity could be on the horizon, although it has not yet materialized. The rally saw Ethereum climb from the low $1,900s to nearly $2,100 on Wednesday, although some of these gains were later given back on Thursday.
Liquidity in the financial system is crucial for altcoins like Ethereum. The lack of liquidity since 2022, due to the Fed's aggressive monetary tightening and QT, has hindered growth in the altcoin market. While Bitcoin has benefited from narratives such as the successful 2024 ETF launch and its growing acceptance as "digital gold," most major altcoins have struggled to keep pace.
The absence of liquidity has led to disappointing altcoin seasons, such as those in early 2024 and following Trump’s election victory. Recent weeks have seen a darkening macro backdrop, with rising risks to US economic growth and inflation threatening to rebound, which has weighed heavily on the market. However, the prospect of the end of QT and the eventual start of a new liquidity wave could substantially lift market sentiment.
Despite rallying 13% from earlier monthly lows and snapping a short-term downtrend, Ethereum has yet to break back above its 21-day moving average (21DMA). This level has offered stiff resistance since the start of 2025, suggesting that price risks remain tilted to the downside in the short term. A more nuanced analysis of the macro backdrop also indicates that risks remain tilted to the downside.
While the Fed slowing QT means the market is one step closer to a new wave of liquidity, several factors need to align before this new wave arrives. Historically, QE liquidity waves have followed some sort of crisis or market turmoil. The US economy is at risk of tilting into recession amid Trump’s trade wars and austerity measures, and the US government needs to refinance a massive amount of its debt. Things may need to get worse before the Fed initiates a new wave of money printing.
Ask Aime: What is the outlook for Ethereum's price after the Fed's decision to slow QT?
This suggests that Ethereum could potentially drop further in 2025 before QE sends it to new highs in 2026. Savvy traders focused on the market’s short-term outlook should closely watch upcoming US economic data releases and trade war news. Ethereum has also failed to reclaim the long-term support-turned-resistance level of $2,100. Risks remain tilted towards a retest of mid-2023 lows around $1,500 before QE and general crypto industry growth, thanks to regulatory support from the Trump administration, sends the market to new all-time highs in the coming years.
