Crypto Market Bleed Explained
We're now in the longest government shutdown in history at 35 days. The shut down kicked off on Sept. 30th when the government failed to pass funding.
The Treasury General Account (TGA) - essentially the U.S. Treasury's checking account at the Federal Reserve used for the governments daily operations. Now it normally hovers around the $700B range but the shutdown has frozen that capital. Revenue still comes in from taxes, fees, etc. but it's not being spent due to the shut down which is why it's climbed to $1 Trillion essentially a $300B difference in capital that should have gone into the economy.
Think of it like damming a river: the water (cash) backs up behind the shutdown, reducing reserves in the banking system from $3.2Trillion to $2.8 trillion now. This tightens the money supply. We're already witnessing the stress on the system with the repo facility.
Now we have to consider the last FED meeting. They're going to end QT on December 1st which means all principal payments on Treasuries roll over at auction, and all MBS/agency inflows get funneled straight into Treasury bills. It's not outright QE (no new purchases), but a stealth easing. The balance sheet holds steady, halting the shrinkage. About $40B per month will be injected back into the bank reserves and money markets.
Put simply: liquidity will flood back in once the shutdown is over and the FED ends QT Dec 1st. The liquidity will fuel markets. Bitcoin and ETH as especially sensitive to liquidity.
We're now in the longest government shutdown in history at 35 days. The shut down kicked off on Sept. 30th when the government failed to pass funding.
The Treasury General Account (TGA) - essentially the U.S. Treasury's checking account at the Federal Reserve used for the governments daily operations. Now it normally hovers around the $700B range but the shutdown has frozen that capital. Revenue still comes in from taxes, fees, etc. but it's not being spent due to the shut down which is why it's climbed to $1 Trillion essentially a $300B difference in capital that should have gone into the economy.
Think of it like damming a river: the water (cash) backs up behind the shutdown, reducing reserves in the banking system from $3.2Trillion to $2.8 trillion now. This tightens the money supply. We're already witnessing the stress on the system with the repo facility.
Now we have to consider the last FED meeting. They're going to end QT on December 1st which means all principal payments on Treasuries roll over at auction, and all MBS/agency inflows get funneled straight into Treasury bills. It's not outright QE (no new purchases), but a stealth easing. The balance sheet holds steady, halting the shrinkage. About $40B per month will be injected back into the bank reserves and money markets.
Put simply: liquidity will flood back in once the shutdown is over and the FED ends QT Dec 1st. The liquidity will fuel markets. Bitcoin and ETH as especially sensitive to liquidity.
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