As investors reserve a record $756 billion with the Federal Reserve, Bitcoin fell below 38,000

Bitcoin (Bitcoin) After the Fed started paying interest, investors transferred a record amount of cash to the Fed’s overnight tool.

U.S. Central Bank received On Thursday, it received US$756 billion through its reverse repurchase program from nearly 70 market participants. The reserves are approximately US$172B higher than what was deposited last week and approximately US$235B higher than Wednesday. Only 53 investors used the facility.

Reverse repurchase tools mainly obtain cash from money market funds and government-sponsored banks. Until Wednesday, the service provided zero interest rate returns to eligible users.

But after the Fed transmit signal Rate hikes are faster-in 2023, instead of the previously expected 2024, the tool will raise its reveal repurchase rate to 0.05% and increase the interest rate on excess reserves from 0.10% to 0.15%.

The Fed’s interest rate adjustment has stimulated demand.Source: British “Financial Times”, Federal Reserve, Bloomberg

Invest excess cash to earn interest

Mainly due to the quantitative easing of the US economy, excessive dollar liquidity has been pouring into money market funds, which subsequently invested them in short-term government securities. Higher demand for these securities tends to push their yields to negative values.

The total financial assets held by money market funds before and after the recession (shaded area).Source: Fred

Since March 2020, negative-yield securities in response to the Federal Reserve’s quantitative easing policy have become one of the main bullish catalysts for Bitcoin and other digital assets.Compared to traditional debt, the cryptocurrency industry promises to provide better returns, and in some cases to be consistent The benefits of the emerging decentralized financial industry.

But as the Fed throws a curveball at the market with a strong tone, mainstream investors have been turning to tools that seem to be less risky than Bitcoin or gold and promise substantial returns. Therefore, the Fed’s repo market recorded its largest inflow of cash flow.

Petr Kozyakov, co-founder and CEO of Mercuryo, a crypto wallet service company, said: “We seem to see an increasing inverse correlation between Bitcoin prices and the Fed’s reverse repo market. He added:

“Many investors choose Bitcoin, which is more volatile, because it promises higher returns. However, based on current market trends, some BTC investors may be selling positions because the outlook for the U.S. dollar is crucial at this time.

This Friday, the US dollar rose to 92.70 against a basket of major foreign currencies, which is also regarded as a safe haven against market uncertainty. This marks the highest level of the US dollar since mid-April. Bitcoin reacted negatively to the strengthening U.S. dollar.

Bitcoin and U.S. dollar indexes react to Fed rate hike signals [so far]. Source:

Will Bitcoin overcome it?

Raoul Pal, founder/CEO of Global Macro Investor, said that the rise in the dollar has killed the inflation argument. Nevertheless, the macroeconomic analyst emphasized that in the long run, the Fed-led reduction dilemma will not harm alternative hedging assets such as Bitcoin and gold.

related: Bloomberg strategists say that diversifying into Bitcoin is a “prudent move”

He pointed out that the US government tends to implement more stimulus plans to expand the Fed’s balance sheet. This means that central banks continue to buy sovereign debt, which pushes down bond yields. Pal said:

“My view is still that the second half of the year is weaker than expected, inflation concerns have temporarily subsided, and growth looks uneven. This has led to more stimulus measures (rather than tightening policies) in the fourth quarter.

Since 1980, after each economic recession, the yield on the 10-year U.S. Treasury bond in the United States has fallen.Source: Bloomberg, Global Macro Investor

Analyst Add to The recovery trend of the US dollar will stabilize in the second half of 2021. Eventually, funds will begin to flow back into the gold and crypto markets.