Dollar Liquidity Dynamics and Their Impact on the Crypto Market
At the heart of the current dynamics is the battle over dollar liquidity. On one side, the Fed continues its quantitative tightening (QT), withdrawing $60 billion $ per month from the markets, for a total contraction of $180 billion $ in Q1. On the other, the RRP, which has become less attractive, is pushing investors to redirect these funds towards higher-yielding assets.
Finally, the US Treasury, deprived of authorization to issue new debt due to the cap, is drawing on the TGA to finance its operations.
This temporary but massive strategy injects liquidity that will peak in March before drying up quickly once an agreement is reached in Congress. According to Hayes, this combination creates fertile ground for cryptos, but the party could be short-lived.
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