The size of the Federal Reserve's balance sheet has shrunk to approximately US$7.109 trillion as of September 17, a cumulative decrease of approximately US$1.39 trillion from the beginning of the year, showing a continued trend of balance sheet reduction. Although the market is generally optimistic due to the 50 basis points cut by the Federal Reserve, believing that this marks the beginning of the bull market, attracting a large influx of new investors, and is accompanied by the significant rise of Bitcoin and some altcoins such as aave, sui, saga, etc., Among them, SUI and SAGA even achieved doubling, but the author is cautious about this.

The author emphasizes that although interest rate cuts are regarded as positive, they do not mean a direct increase in liquidity. Real liquidity improvement requires funds to actually flow into the market. He further explained the basic principles of the Fed's balance sheet expansion and reduction, pointing out that balance sheet reduction is the Fed's behavior to reduce the size of its balance sheet as a means of monetary tightening. In the process of shrinking its balance sheet, the Fed mainly reduces the size of its securities holdings by stopping reinvestment in maturing securities, rather than actively selling them. If the interest-bearing Treasury bonds maturing that month are not enough to meet the reduction target, the Fed will sell short-term Treasury bonds to make up the difference. As the bonds held by the Fed mature, the Treasury issues new Treasury securities to the private sector to refinance the principal, which in the process withdraws money from banks, reducing bank reserves. Ultimately, as the principal of maturing bonds is repaid, the Fed's securities holdings on the asset side decline, and the reserve balances of commercial banks on the liability side also decrease accordingly.

To sum up, although the market is optimistic in the short term due to interest rate cuts, the author remains cautious about the future market based on the continued lack of liquidity caused by the Fed's balance sheet reduction.