The Federal Reserve officially announced the end of its balance sheet reduction on December 1st, and this news has caused a stir in the crypto community. However, many people are still somewhat unclear about the specific implications of this policy shift. Let me break it down in the simplest way—what does this mean, and how should we respond?

Imagine the market as a giant water reservoir, filled with liquidity—that is, real funds. Previously, the Fed was shrinking its balance sheet, which is like holding a water scoop and scooping water out bit by bit. This reduces the amount of money in circulation, making asset prices more likely to face downward pressure.

Now that the Fed has stopped shrinking its balance sheet, it’s essentially putting down the water scoop. To be clear, this doesn’t mean immediately turning on the tap for a new round of quantitative easing (QE), but the key point is: the water level in the reservoir will no longer continue to fall. The pressure of liquidity tightening is beginning to ease. For risk assets like Bitcoin and Ethereum, which are sensitive to liquidity, this is like removing a heavy weight of suppression. It’s a tangible positive signal.

But there’s more to understand here. Some friends see good news and want to go all-in. Honestly, I’ve suffered big losses from this kind of thinking three years ago. When good news came out, I got excited and went all-in, only to be shaken out by market volatility and shakeouts later, resulting in significant losses.

Stopping the balance sheet reduction itself does not mean an immediate surge. It’s more of an important policy turning point, indicating that the period of tightest liquidity may be gradually ending. However, the true recovery of market sentiment and large-scale capital inflows will take time to develop. Plus, there are many other factors currently influencing the market direction.