The Federal Reserve's first "liquidity injection" in five years: Is the $6.8 billion repurchase operation a boost for the crypto market?

December 22, 2025, the Federal Reserve injected approximately $6.8 billion in liquidity into the financial markets through repurchase agreements, marking the first such liquidity operation since 2020. Along with the roughly $38 billion deployed over the past 10 days, these measures aim to alleviate end-of-year liquidity tightness. Although the Fed emphasizes this as a routine technical operation, the crypto market views it as a positive signal for risk assets. Meanwhile, Bitcoin prices continued to be under pressure before the Christmas holiday, falling below $87,000, with market sentiment dominated by “extreme fear.” This article will analyze the nature of repurchase operations, distinguish them from quantitative easing, and explore the future path of the crypto market amid strong macro data and policy expectations.

End-of-Year Liquidity Operations Analysis: The Fed’s “Technical Replenishment” Rather Than Policy Shift

The $6.8 billion repurchase operation conducted by the Federal Reserve on December 22, 2025, is essentially a precise short-term liquidity management tool. Repurchase agreements are routine operations between central banks and commercial banks: the Fed provides cash loans to banks, which pledge high-grade bonds such as U.S. Treasuries as collateral, with a promise to repurchase these assets (usually overnight) at a later date, paying a small interest. The core purpose is not to inject permanent funds into the economy but to ensure sufficient cash flow in the financial system during critical periods (like year-end or quarter-end), preventing short-term interest rates from spiking due to liquidity shortages.

This operation has garnered attention because of its label as “first since 2020.” It signifies the reactivation of a seldom-used tool in the Fed’s toolkit. Earlier, the New York Fed had updated its standing repo facility on December 10, removing the total transaction limit and shifting to a full-allocation framework, with a cap of $40 billion per transaction. These changes provided greater flexibility in liquidity support. However, many analysts emphasize that it must be strictly distinguished from quantitative easing. QE involves the central bank directly purchasing large amounts of assets to expand the balance sheet over the long term and lower long-term interest rates; in contrast, repos are short-term, collateralized loans where funds are eventually repaid, without altering the long-term size of the balance sheet. As analyst ImNotTheWolf states: “This is not QE, it’s not printing money, and it’s not a signal of easing policy because the money has to be repaid. But it does indicate that liquidity remains somewhat tight.”

Therefore, interpreting these operations as a “rocket” signaling a policy shift is a misreading. They should be viewed more as technical adjustments to ensure smooth functioning of the money markets during year-end settlement and regulatory review periods. The real picture behind this is: the banking system’s demand for reserves has increased, and liquidity has experienced cyclical tightness. The Fed’s response demonstrates its resolve to prevent any potential escalation of financial market stress.

Market Reaction and Crypto World Interpretation: The “Rain” of Liquidity

Although officially characterized as “routine operations,” risk asset markets, especially the crypto market, responded positively. The internal logic is straightforward: more cash entering the financial system → easier financing environment → reduced overall market pressure → increased risk appetite. As a typical high-risk preference asset, cryptocurrencies are highly sensitive to subtle changes in global liquidity conditions.

Analyst TheMoneyApe clearly pointed out the market’s general expectation: “More cash entering the system means easier financing, less pressure, and a more favorable environment for risk assets like Bitcoin and other cryptocurrencies.” This expectation is not unfounded. Historically, during periods of liquidity support (regardless of form), assets like Bitcoin tend to receive positive momentum. Currently, the entire crypto market is at a complex crossroads: on one hand, strong U.S. economic data (such as Q3 GDP growth at 4.3%) reduces expectations of rapid Fed rate cuts, putting pressure on risk assets; on the other hand, any marginal improvement in liquidity could serve as a catalyst for suppressed bullish sentiment to be released.

However, market optimism is mixed with caution. Some traders believe this may be an isolated year-end event aimed at addressing seasonal liquidity needs rather than signaling a new easing cycle. The real test lies in the coming weeks: will the Fed continue to support via similar operations, or will it withdraw liquidity tools? Market participants are closely watching for any clues about the 2025 policy trajectory.

Current Key Conditions in the Crypto Market

According to multiple data sources, Bitcoin price has fallen below $87,000, with a 24-hour decline of approximately 1.4% to 2.1%. The “Fear and Greed Index” currently ranges from 24 to 29, indicating market sentiment has shifted into “fear” or even “extreme fear,” reflecting fragile investor confidence.

From a technical analysis perspective, Bitcoin’s daily chart has formed a classic bearish flag pattern, also known as a bear flag, and a “death cross” (where the 50-day moving average crosses below the 200-day moving average), signaling short-term downside risk. Meanwhile, funding flows show that open interest in futures contracts and trading volume in spot markets have declined, indicating reduced market participation and risk appetite.

On the broader macro background, recent strong economic data from the U.S. has lowered expectations of aggressive Fed rate cuts; simultaneously, traditional safe-haven assets like gold and Swiss francs have risen. This macro environment exerts pressure on risk assets, including cryptocurrencies.

Divergence and Game Theory: Why Liquidity Benefits Cannot Overcome Market Downtrend?

An interesting and critical phenomenon is that, despite the Fed’s liquidity injections, Bitcoin and the entire crypto market remained weak before the Christmas holiday. This reveals the presence of stronger downward forces competing with liquidity support.

The primary suppressor is robust macroeconomic data. The strong Q3 GDP growth in the U.S. diminishes expectations of an imminent rate cut. For rate-sensitive assets like cryptocurrencies, “higher for longer” interest rate expectations increase the opportunity cost of holding non-yielding assets, prompting sell-offs. This contrasts sharply with traditional equities, which often rally after strong economic data, highlighting the unique position of crypto in macro narratives.

Second, technical selling pressure cannot be ignored. As mentioned, the formation of bearish flags and death crosses on Bitcoin’s chart are seen by technical analysts as signals of potential continued downtrend. Additionally, recent expiry of $28.5 billion worth of Bitcoin and Ethereum options, with large “max pain” points and a concentration of puts at lower levels (around $85,000), can trigger volatility during the holiday period when liquidity is thin, prompting traders to close positions early to hedge risks.

Finally, market sentiment and seasonal factors play a role. During Christmas and New Year holidays, many institutional traders exit the market, reducing liquidity and amplifying price swings. Investors tend to close positions or hold cash before long holidays, creating a “risk-averse” cycle that leads to widespread selling. The “extreme fear” sentiment itself can suppress buying interest, forming a short-term negative feedback loop.

Thus, the Fed’s repurchase operations, like dropping a small stone into turbulent waters, create ripples of “liquidity easing” but struggle to immediately reverse the massive waves driven by macro conditions, technical signals, and large derivatives expiries. Market focus has shifted from pure liquidity concerns to deeper worries about the overall 2025 monetary policy trajectory.

Investor Guidance: Navigating Between Policy Signals and Market Noise

In the face of intertwined liquidity benefits and market downtrends, investors need a clear strategy to navigate the fog. The primary principle is understanding the nature of operations: current repurchases are tactical responses to year-end liquidity needs, not a strategic easing announcement. Misinterpreting them as the start of a new monetary easing cycle could lead to overly aggressive, ill-timed entry decisions.

For short-term traders, strict discipline is essential. Key technical levels are crucial: $88,000 remains a recent support, while $90,000 has become a strong resistance. During the holiday period with large option expiries and thin liquidity, the market may oscillate between these levels. Traders should avoid blindly chasing rallies or panicking on dips, instead considering scaled entries near support levels and setting strict stop-losses to guard against further downside signals like death crosses.

Long-term holders (HODLers) should filter out noise and focus on core narratives. Short-term liquidity operations and price swings should not shake confidence in the long-term value proposition of crypto. On-chain data offers positive signals: for example, over 41,000 Bitcoin have been withdrawn from exchanges in the past two days, and exchange ETH reserves are at multi-year lows. These are often interpreted as long-term investors accumulating, rather than panicked selling, reducing potential sell pressure. Long-term investors may see the current price pullback caused by macro concerns and technical sell-offs as a temporary phase before trend confirmation, but they should also manage positions carefully to avoid early over-commitment in a clear downtrend.

The History of Repo Tools and Crypto Liquidity Cycles

To truly understand the significance of this repurchase operation, it’s helpful to view it within a broader historical and cyclical context. The Fed’s repo tools are not new, but they have been used extensively during the 2008 global financial crisis and the early COVID-19 pandemic as vital stabilizers. The restart after five years, though smaller in scale, is highly symbolic—it confirms that liquidity pressures are real and that the Fed’s “fire hydrant” remains ready.

For the crypto market, the correlation with global liquidity has become increasingly tight. We observe a cyclical pattern: when major central banks (especially the Fed) expand their balance sheets or provide emergency liquidity, crypto markets often experience liquidity-driven bull runs; when they tighten policy and withdraw liquidity, crypto tends to enter winter or deep corrections. The current phase is a delicate “intermission”: aggressive rate hikes have paused, but rate cuts have not yet begun. The Fed’s marginal liquidity injections via repos reflect this intermission. The market is testing whether this “drip-feed” of support can sustain risk assets amid high interest rates.

Ultimately, this $6.8 billion repurchase operation is less a decisive bullish trigger and more an important prelude to the 2025 monetary policy script. It reminds the market that the Fed remains vigilant about financial stability. For the crypto market, a true trend reversal likely depends on clearer policy signals or a breakout of key technical levels attracting new capital. Until then, the market may continue a bumpy journey between hope and fear.