According to the Fed's official website, as of September 17, the Fed's balance sheet has dropped to about $7.1 trillion, now at $7.109 trillion. The total balance sheet reduction this year is about $1.39 trillion.
What I was worried about still happened. Although the interest rate was cut by 50 basis points, the cryptocurrency community believed that the bull market had begun. Many people outside the circle began to rush in, and people inside the circle also began to cheer and please, especially in the past few days, the bitcoin price has risen for several consecutive days. The Shanzhai also rose well, and the aave, sui, and saga I shared also rose well $SUI and $SAGA have doubled, but I am still very cautious. There is always peace and prosperity before the storm, and muscle memory has been formed after too many experiences!
Interest rate cuts are indeed a positive, but they do not necessarily increase liquidity. Real liquidity is when funds flow into the market. This requires us to talk about the basic principles of the U.S. balance sheet expansion and contraction.
Fed's balance sheet reduction: The act of reducing the size of the balance sheet is a regulatory measure of monetary tightening. The Fed's reduction in securities holdings will lead to a reduction in excess reserves of commercial banks. The Fed will mainly reduce its balance sheet by stopping reinvestment in maturing securities rather than actively selling them. If the interest-bearing Treasury bonds maturing in the month are insufficient to reduce the upper limit, the short-term Treasury bonds will be sold to make up the gap. When the bonds held by the Fed mature, the Treasury Department "refinances" by issuing new Treasury bonds to the private sector to raise funds to pay the principal. The private sector withdraws money from the bank where its deposits are located, resulting in a reduction in bank reserves. As the principal of maturing bonds is repaid, the size of the securities holdings on the asset side of the Fed decreases, and the reserve balance of commercial banks on the liability side decreases.
In layman's terms, the Fed's balance sheet reduction means selling its assets and withdrawing US dollars, which reduces the liquidity of US dollars in the market. Balance sheet expansion means buying assets in the market and releasing US dollars, which increases the amount of US dollars in the market.
When Silicon Valley Bank went bankrupt, the Federal Reserve expanded its balance sheet by 270.1 billion to save the market. It had to buy back assets and release dollars. This operation was inconsistent with the interest rate hike at the time. In other words, the interest rate hike and dollar tightening should shrink the balance sheet. This time, the interest rate cut should be an expansion of the balance sheet, but the United States shrinks it instead. According to the existing US economic development data, the GDP in the second quarter was 3% higher than the first quarter, CPI was 2.5%, PPI was 0.2%, the unemployment rate was 4.2%, the US Reserve Insurance Corporation continued to make profits, durable goods sales and other data should not have cut interest rates, and the interest rate cut was cut in advance and by 50 basis points. The US financial market is not optimistic about this abnormal behavior, and now the market liquidity has further declined due to the shrinking balance sheet. Therefore, the market outlook is not optimistic.
The real bull market has begun. It is useless for the United States to cut interest rates. As long as the balance sheet continues to shrink, liquidity will still be insufficient. The means that the United States has always used is to raise interest rates and shrink the balance sheet to collect global dollars, causing the economies of various countries to fall into a downturn. Many high-quality companies cannot continue to operate and go bankrupt. Then he cut interest rates and expanded the balance sheet to allow Americans to buy up global high-quality assets. As the economy slowly recovers, these high-quality assets will begin to make profits, bringing a steady stream of dollars and vitality to the United States. So everyone has to wait patiently. Only when the interest rate cut is accompanied by the expansion of the US balance sheet, the real bull market will begin.
At the same time, I would like to remind all coin friends that there is an iron rule in the financial circle: the deeper the fall, the more fierce the rise! If the fall is not big enough, the rise will not be big! Be patient and wait. If 65,000 is not broken, it will go down. If you have made a profit recently, you should pay out your own capital to protect the principal. Don't think that BTC will hit 100,000 as soon as it rises!
