The Federal Reserve injects $55 billion over three weeks. How will the liquidity wave impact the crypto market?

The Federal Reserve’s Open Market Trading Department announced the largest debt purchase plan starting from January 20, with an initial purchase of $8.3 billion in 1-4 month Treasury bonds, followed by a total of $55.36 billion before early February. Wall Street responded swiftly, with Barclays Bank estimating that the total short-term government bonds purchased by the Fed in 2026 could approach $525 billion, far exceeding the previous forecast of $345 billion.

Liquidity Release

The Fed’s latest move has stirred waves in the financial markets. Its Open Market Trading Department announced a debt purchase plan starting from January 20, with a total of $55.36 billion in Treasury bonds to be bought within three weeks. This action is seen as a proactive response to financing pressures, aiming to ease volatility in the repurchase market.

Barclays analysts believe this move indicates the Fed’s “extremely low tolerance” for financing pressures. This significant shift in the U.S. Treasury market signals an impending influx of liquidity into the financial system.

Market reactions show that traditional finance quickly adjusted expectations. According to JPMorgan, the Fed is expected to maintain a monthly purchase scale of $40 billion until mid-April. Coupled with approximately $15 billion in mortgage-backed securities reinvestments per month, the total Fed purchases in the secondary market are projected to reach $490 billion in 2026.

Wall Street’s Reassessment

The Fed’s debt purchase plan has triggered a series of forecast revisions on Wall Street. This capital injection is not limited to the short-term $55 billion but marks the beginning of a long-term liquidity strategy.

Major financial institutions have adjusted their estimates of U.S. Treasury supply and demand. The table below shows the latest predictions from leading investment banks regarding the Fed’s purchase scale:

Deutsche Bank analysts note that the Fed started this process earlier than in 2019, indicating a more cautious approach in managing the transition to abundant reserves. This cautious stance reflects the Fed’s high concern for financial system stability.

Transmission Mechanism in Crypto Markets

When liquidity in traditional financial systems increases, these funds often flow into crypto markets through various channels. The new liquidity creates a “liquidity spillover” effect, prompting investors to seek higher-yield assets. This logic has been repeatedly validated during past quantitative easing cycles.

Famous crypto analyst Crypto Rover has explicitly stated that loose monetary policy in the U.S. will drive parabolic rises in altcoin prices. This prediction is based on historical patterns: when traditional financial markets are liquidity-rich, risk appetite rises, and funds flow into high-risk, high-return assets like cryptocurrencies.

It is important to note that this transmission is not instantaneous. There is usually a time lag between the Fed’s bond purchases and crypto market reactions, often taking several weeks. Recently, Bitcoin’s price broke above $90,000 after the announcement, possibly reflecting market expectations of this liquidity injection.

Role Evolution of Institutional Investors

Institutional investors are undergoing profound changes in the crypto market. They are no longer just trend followers but are increasingly becoming decisive forces in market direction.

Analysis from Galaxy Research shows that Bitcoin’s long-term volatility levels are experiencing structural declines, partly due to the introduction of larger-scale institutional options strategies. This change indicates that the crypto market is transitioning from a retail-dominated volatile market to a more stable, institution-led one.

According to Gate data, as of January 20, 2026, Bitcoin’s price was $92,750.4, with a market cap of $1.84 trillion, accounting for 56.42% of the entire crypto market. Meanwhile, Ethereum was priced at $3,194.15, with a market cap of $387.58 billion.

The continuous inflow of institutional funds is altering market dynamics. With spot ETFs approved and corporate treasuries continuing to allocate, Bitcoin’s buying logic has shifted from “cyclical speculation” to “strategic asset allocation.”

Potential Market Impact

The Fed’s bond purchase actions may have differentiated effects on various crypto asset classes. Historical experience shows that liquidity injections typically first boost mainstream assets like Bitcoin, with funds gradually spreading to other tokens.

According to ChainCatcher, 2026 will mark the official entry of crypto assets into an era of revaluation based on cash flow and utility. This means projects with real-world applications and cash flow generation may receive more attention.

Market structure is also changing. The “casino narrative” of recent years is fading, replaced by a “utility narrative” after infrastructure improvements. This shift suggests that tokens relying solely on hype may struggle to attract funds, while projects solving real problems will stand out. The Fed’s liquidity injection could accelerate this process. When markets are flush with capital, investors are more capable of long-term positioning rather than short-term speculation.

Opportunities and Risks

In an environment of abundant liquidity, certain crypto sectors may benefit particularly. Decentralized finance (DeFi) continues to expand, and prediction markets are moving from fringe to mainstream. Meanwhile, tokenization of real-world assets could emerge in mainstream capital and collateral markets.

It is important to note that the Fed’s bond purchase plan is not without risks. Wells Fargo team warns that although the $40 billion monthly scale is at the expected limit, it is not a “panacea” for year-end liquidity, and financing markets are expected to face some pressure before the end of the year.

Strategies from CIBC also express similar views, believing these measures cannot fully eliminate volatility. Crypto market reactions may also be uncertain. Galaxy Research points out that before Bitcoin’s price stabilizes in the $100,000 to $105,000 range, there remains short-term downside risk. Broader financial market factors, such as monetary policy conditions and U.S. midterm elections, could also increase uncertainty.

As of January 20, Bitcoin’s price has remained above $92,750, while Ethereum hovers around $3,194. Barclays analysts believe the Fed’s tolerance for financing pressures is “extremely low,” and future adjustments to bond purchase strategies are possible. On Wall Street, predictions are being rewritten—$525 billion, $490 billion, $425 billion—these are not just zeros after dollar signs but the liquidity foundations that could reshape the crypto market landscape in 2026.