Fed Starts Creating Money Again While Markets Sell The News
FOMC Bulletin | December 10, 2025
Excerpt: Fed launches first money creation since 2020. $40B monthly Treasury purchases. The 42-month headwind that killed every Bitcoin rally just became a tailwind. Markets selling the news while missing the regime change.
The Real Story
The Fed cut rates 25 basis points as expected. But buried in Powell’s prepared remarks was the real news: the Federal Reserve is actively creating money again for the first time since March 2020. They’re calling it “reserve management.” For risk assets, it’s liquidity injection.
$40 billion in Treasury purchases, first month. The structural headwind that killed every Bitcoin rally for 42 months just became a tailwind.
What Actually Happened
| Fed Action | Surface Reading | What It Really Means |
|---|---|---|
| Rate Cut | 25bp to 3.50-3.75% | 🟢 Priced in, irrelevant |
| Treasury Purchases | “$40B reserve management” | 🟢 Money creation resumed |
| Standing Repo | “Counterparty limits adjusted” | 🟢 $500B backstop ready |
| Reserves | “Declined to ample levels” | 🔴 Hit the floor at $2.89T |
Powell’s exact words: “initiate purchases of shorter-term Treasury securities solely for the purpose of maintaining an ample supply of reserves.”
Translation: We drained too much. System almost broke. Now we’re injecting.
The technical distinction: The Fed insists this isn’t QE because they’re buying short-term T-bills, not long-duration bonds. For crypto and risk assets, the distinction is academic. New liquidity is new liquidity.
The $135 Billion Monthly Reversal
| When | Fed Action | Market Reality |
|---|---|---|
| June 2022 to Nov 2025 | Draining $95B/month | Every rally dies at QT ceiling |
| December 2025 | Injecting $40B/month* | QT ceiling removed |
| Net Change | +$135B/month swing | Headwind becomes tailwind |
*MBS runoff continues at ~$15B monthly, but Treasury component reversed
This isn’t a slowdown. It’s a full reversal. The Fed went from removing $95 billion monthly to adding $40 billion. That’s new reserves entering the banking system.
Why they had no choice:
- Bank reserves hit $2.89 trillion, right at the Fed’s estimated minimum of $2.7-2.9 trillion
- October’s repo stress saw Standing Repo Facility usage hit $18.5B
- December 31 quarter-end looming — historically a liquidity crunch point
They remembered September 2019’s repo crisis. They couldn’t risk a repeat at year-end.
Bitcoin’s Structure: Reset and Ready
The October Leverage Purge
| Metric | October 10-11 Peak | Today | Signal |
|---|---|---|---|
| Liquidations | $19.1B (largest ever)* | $292M | 🟢 Clean structure |
| Traders Liquidated | 1.6 million | Normal | 🟢 Weak hands gone |
| Funding Rate | >0.10% | 0.0025% | 🟢 No speculation |
*Sources: CoinGlass, CryptoPotato, CCN confirm October 10-11 as largest crypto liquidation event in history
October’s violence cleared every overleveraged position. Today’s market structure is the cleanest since early 2024.
Cycle Position: Mid, Not Late
Top Indicator Dashboard (CoinGlass):
- Indicators triggered: 0 of 30
- Average progress: 43.74%
- Closest indicator: BTC dominance at 59.08% (trigger >65%)
- Pi Cycle: Current 92,723 vs trigger >204,559
- RSI: 45.35 vs trigger >80
When Bitcoin tops, these indicators activate. Funding exceeds 0.05% for weeks. RSI sustains above 80. Euphoria dominates.
None of that is present. We’re statistically mid-cycle.
The 2019 Precedent
| Aspect | September 2019 | December 2025 |
|---|---|---|
| Trigger | Repo market breaks | Repo market stressed |
| Fed Response | End QT, start T-bill purchases | End QT, start Treasury purchases |
| Initial Size | $60B/month | $40B/month |
| Bitcoin Price | ~$7,500 | $92,584 |
| What Followed | -35% first, then +7.6x after QE | TBD |
Critical context: In 2019, Bitcoin fell 35% in the months following QT’s end. The explosive rally didn’t begin until the Fed launched full-scale QE in early 2020 amid COVID. The end of QT removed a headwind; actual QE provided the tailwind.
Critical difference: 2025 has Bitcoin ETFs, corporate treasuries holding 1M+ BTC, and institutional infrastructure. The liquidity transmission mechanism is stronger.
Caveat: Past monetary pivots don’t guarantee similar outcomes. Multiple variables affect asset prices.
Five Real Risks
- Taper risk: $40B is month one. Powell said “elevated for a few months” then likely tapers to $10-20B
- MBS drainage: Still removing $15-16B monthly through mortgage securities
- Inflation resurgence: Could force Fed reversal
- TGA wild card: $903B Treasury balance could stay elevated or drain unpredictably
- Transmission failure: Banks might not lend new reserves into economy
These are legitimate concerns. But the directional shift from drainage to injection is confirmed.
Market Reaction vs Reality
Current Price Action:
- FOMC spike: $94,500
- Current: $92,584
- Classic “sell the news” pattern
Historical FOMC Pattern:
Initial volatility typically resolves within 5-7 trading days. But this time, the structural backdrop has changed.
The Divergence:
Markets are debating 2026 dot plots. They’re missing the liquidity regime shift. Price reflects the rate cut. It doesn’t yet reflect the end of 42 months of systematic drainage.
The Bottom Line
For 42 months, the Fed drained $2.4 trillion from markets. Every rally hit the QT ceiling.
That era ended December 1st. Today they started injecting. December 31 quarter-end forced their hand.
The regime changed. Price hasn’t caught up.
Key Monitoring Points
- Fed H.4.1 releases: Weekly balance sheet updates (Thursdays)
- Standing Repo usage: Stress indicator (daily at NY Fed)
- Bank reserves: Must stay above $2.7T floor
- TGA balance: Watch for drawdown from $903B
- December 18 CPI: First inflation read since September — markets without CPI for 8 weeks due to appropriations lapse
Pierce & Pierce Research | Democratising Institutional Grade Crypto Research
Sources: Federal Reserve (FOMC Statement December 10, 2025; Press Conference Transcript; Implementation Note); CoinGlass (cycle indicators, liquidations); CoinGecko (price data); NY Fed/Richmond Fed (reserve floor studies); October liquidation reporting (CryptoPotato, CCN, Bitcoin Magazine)
Disclaimer: This bulletin provides market analysis based on public information. It does not constitute investment advice. Digital assets carry substantial risk including total loss of principal. Reserve management purchases may differ materially from quantitative easing in their market impact.
