Bitcoin rebounds: Fed effect + Vanguard ETFs

Bitcoin (BTC) experienced a spectacular surge, jumping 11% from its 1 December lows of $83,822.76 and surpassing $93,000 overnight, driven by a favourable combination of macroeconomic and micro-structural developments.

The main macro factor was the Federal Reserve's formal announcement on the end of quantitative tightening (QT) on 1 December. This event coincided with the New York Fed conducting some $25 billion in repo morning operations and an additional $13.5 billion overnight, representing the largest liquidity injections made since 2020.

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This massive infusion of liquidity had the immediate effect of easing the stress on funding, acting as a driver for the BTC, as traders responded to this abrupt and abrupt change in the monetary setup. The termination of QT coupled with the direct provision of liquidity typically supports high-beta assets by reducing borrowing costs and expanding the supply of dollars in the financial system.

The odds of a rate cut shifted further in Bitcoin's favour after weak US manufacturing data reinforced speculation of an impending economic slowdown.

The ISM manufacturing PMI printed at 48.2, marking a ninth consecutive month of contraction. This figure raised the odds of a 25 basis point cut at the 10 December FOMC meeting into the 80% high range according to CME FedWatch bets.

As a result, rising expectations of a cut stabilised risk assets after the selloff on 1 December, which traders had previously attributed to speculation about a potential tightening by the Bank of Japan and low crypto liquidity.

The Distribution Catalyst Meets Flow Reversal

Along with the macro headwinds, an important structural news provided an immediate boost to demand: Vanguard, which manages about $9 trillion to $10 trillion in assets, opened its brokerage platform for the first time to third-party crypto ETFs and mutual funds tied to BTC, ETH, XRP and SOL.

Eric Balchunas, a senior analyst at ETF for Bloomberg, coined the term "Vanguard effect," noting that Bitcoin rose about 6 per cent around the time the US market opened on the first day clients had access to these products.

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BlackRock's IBIT alone recorded an impressive volume of about $1 billion in the first 30 minutes of trading. This distribution milestone came just as spot ETF flows on Bitcoin in the US returned modestly positive, after four consecutive weeks of total outflows that had exceeded $4.3 billion.

The market structure amplified the rally once Bitcoin broke through the resistance level. After November had recorded the worst monthly performance in over four years, and the sharp 7.3% drop on 1 December had pushed the BTC below $84,000, positioning was unbalanced to the downside, and sentiment indicators registered a state of "extreme fear".

Despite the rebound, it is crucial to note that Bitcoin remains down more than 30% from its October peak near $126,000. November alone had wiped out about 17% of value due to more than $3.5 billion in ETF redemptions and stress around large corporate holders such as Strategy.

The rebound reflects macro-driven relief (end of QT and Fed liquidity injections), favourable structural winds (opening of the Vanguard platform and slowing ETF outflows) and short hedging from a key support level, rather than a reversal of the broader downtrend.