Is the Fed quietly injecting liquidity? Analysts warn

In the context of increasing geopolitical tensions and a fragile global macroeconomic environment, analysts are sounding the alarm that the Fed is quietly pumping liquidity into the financial system. While the Federal Reserve has (Fed) not announced a pivot, liquidity suggests otherwise. The consequences spread across all asset classes, from Treasury yields to Bitcoin's $500 billion plunge. The chaos of the Treasury and the 6.5 trillion dollar time bomb The story of the new trade war is at the center of the storm. Last week, Chinese Foreign Ministry spokesman Lin Jian declared that Beijing would "fight to the end" against the tariffs proposed by Donald Trump, which have now reached 104% on some Chinese goods. This language is very fierce, reflecting the characteristic "wolf warrior" stance of China. However, behind that, pressure is increasing. "Chinese people do not cause trouble, but we are not afraid of that," Mr. Lam told reporters. As exports slow down and concerns about capital flight increase, Beijing's stance may soon shift to prioritizing economic survival over ideological posture. Beneath the surface, a high-stakes financial game is underway. Veteran analyst Peter Duan believes that Trump's tariff pressure is ultimately aimed at lowering the yield on the 10-year Treasury bond, as the United States faces a massive $6.5 trillion debt coming due in the coming months. "Trump is pushing for a trade war to lower the 10-year Treasury bond interest rates... China is dumping U.S. Treasury bonds to drive yields up," Duan wrote. When selling treasury bonds at a discount, China has increased economic tensions and caused unintended consequences. This includes soaring yields and reducing demand from the bond market just when the United States needs to refinance the most. The collapse of the reverse acquisition agreement, is the Fed quietly pumping liquidity? The Federal Reserve, affected by inflation and financial stress, seems to have responded more secretly than with a fanfare. The Fed's reverse Repo facility (RRP) is the clearest evidence of a quiet liquidity flood. After peaking at over $2.5 trillion in 2022, the RRP balance has decreased to just $148 billion, corresponding to a 94% reduction. "This is not a false hope. This is real liquidity being unleashed. While everyone is shouting about tariffs, inflation, and the ghostly trauma of SVB... the largest secret easing since 2020 has taken place," Oz, the founder of The Markets Unplugged, wrote.

The implication is seismic, as the decrease in RRP balances means that money is flowing back into the system. This drives up the prices of risky assets as it is translated into QE without being called QE. However, the RRP is nearly depleted, prompting analysts to issue warnings. "Reducing RRP increases liquidity for the market. Not having much in the RRP account means it can't provide much liquidity. There will be a short-term recovery, but no new ATH this year," a options trader noted.

However, Oz countered that although the near depletion of RRP signifies the end of passive momentum, it does not necessarily mean the end of the bull run. The Fed's dilemma: Inflated or broken? Conscious Trader, a renowned analyst on X (Twitter), outlines the risks. He stated that if the Fed allows liquidity to deplete further, a mass deleveraging could trigger a full-blown crisis. "No matter what, a pullback is coming. If the market breaks first, the sell-off will pave the way for QE. If QE starts first, Smart Money will sweep away the lows before liquidity pumps risky assets higher," he noted. This means that if the Fed officially resumes QE, they risk increasing inflation or creating a bubble. Since April 2, the market capitalization of Bitcoin has decreased by more than 500 billion dollars, dropping below 75,000 dollars before a modest recovery. Altcoins fared worse, affected by a double whammy of reduced liquidity and macro fears. BeInCrypto reports that the likelihood of official QE returning in 2025 is increasing, which could mark a turning point for digital assets. The liquidity cycle in history has determined the boom and bust phases of cryptocurrency. In 2020, QE fueled the "everything rally," with Bitcoin and altcoins reaching all-time highs. If QE is secretly discovered, a repeat performance could occur. "You don't need to cut interest rates. You already have a liquidity increase happening... Liquidity says: 'Put on your helmet. You're about to chase those green candles to ATH,'" Oz added.

This aligns with Hayes' recent prediction that Bitcoin could reach $250,000 if the Fed shifts to quantitative easing. However, the cryptocurrency market may have to face another winter if the Fed hesitates or global liquidity breaks down. The Fed may not say anything, but silence does not mean inaction. With reverse repos nearly depleted, rising trade tensions, and volatile Treasury markets, quietly pumping liquidity seems to be the first move in a larger game. The general consensus among analysts is that whether this ends in another bull run or something much worse depends on how long the Fed can remain silent. ⚠️IMPORTANT! If you like this topic, don't forget: • Follow me @blogtienso for more interesting content! • Like, share and leave a comment 💖 and don't forget DYOR! #Write2Earn #Write&Earn $BTC {spot}(BTCUSDT)