Altcoin Struggles Amid Tight Liquidity: Will Fed Action Spark a Late-Cycle Rally?

Since Donald Trump's victory in the November 2024 election, his pro-crypto policies have positively impacted Bitcoin, which has surged nearly 22% since November 5.

However, altcoins have struggled to keep up, with their market growing only 14% during the same period. Major altcoins like Ethereum, Solana, Cardano, and Dogecoin have seen significant declines over the past year, raising questions about what might trigger a rally for these assets.

Several factors could potentially help altcoins rebound, including Trump’s ongoing crypto-friendly policies, upcoming spot ETFs for Solana, XRP, and Litecoin, and market reactions to the U.S. tariffs imposed on China, Canada, and Mexico. Additionally, concerns about a U.S. recession could shift investor behavior, potentially benefiting altcoins.

However, tight liquidity in the U.S. is seen as the primary issue holding back altcoins. According to analyst VirtualBacon, the U.S. Federal Reserve’s Quantitative Tightening, the depletion of the Reverse Repo Facility, and the low balance in the U.S.

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Treasury General Account are all draining liquidity from the market. VirtualBacon also highlights the risk of a debt maturity crisis in 2025, which could worsen the liquidity squeeze unless the Fed intervenes.

If the Fed responds by injecting liquidity, altcoins could experience a rally, but this may only happen later in the cycle when financial conditions improve. Investors who position themselves well during this phase may stand to gain when the market eventually shifts.

Alexander Stefanov