Bitcoin is up 750% over the last 3 years (wow) as the Fed tightened monetary conditions.Fed Funds: 0.25% → 5.5% → 4.25%Balance Sheet: $9T → $6.5TNow that QT is ending and the Fed's policy rates are coming down to sub-3%, BTC now has the tailwinds of easing at its back. https://t.co/NbhLHz6A65Joe Consorti ⚡️ (@JoeConsorti):Bitcoin managed to rise from $18,000 to $126,000 as the Fed reduced its balance sheet.What do you think happens now that it's ending?🟢🟢🟢🟢 ...

Core Viewpoint - The Federal Reserve may be approaching the end of its quantitative tightening (QT) efforts, as indicated by tightening liquidity conditions and monitoring various economic indicators [1][2][3]. Group 1: Quantitative Tightening (QT) Overview - QT has been ongoing since 2022, aimed at removing excess liquidity injected during the COVID-19 pandemic through large-scale purchases of Treasury and mortgage bonds [7]. - The Fed's reverse repo facility (RRP), which peaked at $2.6 trillion at the end of 2022, has seen near-zero usage recently, signaling a potential end to QT [4][5]. Group 2: Liquidity Conditions - Powell noted signs of gradually tightening liquidity conditions, including a firming of repo rates and temporary pressures on specific dates [3]. - The reduction of reserves due to QT could lead to unexpected liquidity scarcity, complicating the Fed's ability to maintain its interest rate target [5]. Group 3: Historical Context and Tools - The Fed had to intervene unexpectedly during the last QT phase in September 2019 to add liquidity back to the system, leading to the establishment of the Standing Repo Facility as a liquidity buffer [6]. - The current monetary policy interest rate target is set between 4% and 4.25%, with the RRP tool helping to maintain this target [4].

NEW YORK (Reuters) -The U.S. labor market remained mired in its low-hiring, low-firing doldrums through September, though the economy overall "may be on a somewhat firmer trajectory than expected," Federal Reserve Chair Jerome Powell said on Tuesday. He noted that at policymakers will take a "meeting-by-meeting" approach to any further interest rate cuts as they balance job market weakness with the fact that inflation remains well above their 2% target. Powell also said the end of the central bank's long ...

Core Viewpoint - The Federal Reserve may soon conclude its quantitative tightening (QT) efforts, which have been in place since 2022, as liquidity conditions in the financial system are being closely monitored [1][2]. Group 1: Quantitative Tightening (QT) Overview - QT aims to reduce the excessive liquidity added during the COVID-19 pandemic, with large-scale purchases of Treasury and mortgage bonds previously stabilizing markets [4]. - The Fed's balance sheet has decreased from around $9 trillion to $6.6 trillion since the initiation of QT, as bonds are allowed to mature without replacement [5]. - There are indications that liquidity conditions are tightening, evidenced by firming repo rates and temporary pressures on specific dates [3]. Group 2: Future Outlook and Monetary Policy - Powell indicated that the Fed's ample reserves regime has been effective for monetary policy implementation and financial stability [6]. - The extent to which the Fed can continue to shrink its holdings remains uncertain, but officials believe there is still sufficient liquidity to proceed with QT without disrupting money markets [5]. - Powell emphasized the importance of maintaining the Fed's interest-paying powers to ensure effective rate control and avoid significant market stress [6].

NEW YORK (Reuters) -The U.S. labor market remained mired in its low-hiring, low-firing doldrums through September, though the economy overall "may be on a somewhat firmer trajectory than expected," Federal Reserve Chair Jerome Powell said on Tuesday. He noted that at policymakers will take a "meeting-by-meeting" approach to any further interest rate cuts as they balance job market weakness with the fact that inflation remains well above their 2% target. Powell also said the end of the central bank's long ...

By Michael S. Derby (Reuters) -Federal Reserve Chair Jerome Powell said on Tuesday the end of the central bank’s long-running effort to shrink the size of its holdings, widely known as quantitative tightening, or QT, may be coming into view. Given the central bank’s long-running goal of leaving enough liquidity in the financial system to allow for firm control of short-term rates and normal money market volatility, Powell said “we may approach that point in coming months, and we are closely monitoring a ...

Core Insights - The Federal Reserve's balance sheet decreased by $15 billion in September, totaling $6.59 trillion, marking a 26.5% reduction since its peak in April 2022 [1][2] - The Fed has shed 49.5% of the $4.81 trillion accumulated during the pandemic-era quantitative easing (QE) [1] - The Standing Repo Facility (SRF) saw limited use, with $1.5 billion drawn on September 15, indicating minor liquidity strains in the repo market [1][15] Balance Sheet Changes - Total assets declined by $15 billion, consisting of $24 billion in declines and $9 billion in increases [1] - Treasury securities decreased by $4.4 billion in September, down 27.3% from the peak in June 2022, totaling $4.20 trillion [4] - Mortgage-Backed Securities (MBS) fell by $16.8 billion in September, down 24% from the peak, now at $2.08 trillion [7] Specific Asset Changes - The decline in MBS is attributed to reduced mortgage refinancing and home sales, leading to slower principal payments [8][9] - The Fed has shed 48% of the $1.37 trillion in MBS accumulated during pandemic QE [7] - Unamortized premiums decreased by $1.9 billion in September, reflecting the amortization of premiums paid for bonds during QE [22] Liquidity Facilities - The Discount Window saw an increase of $2.8 billion, reaching $7.2 billion, indicating some uptake by banks to manage liquidity needs [19] - The SRF has been improved to encourage banks to borrow and lend in the repo market, helping to stabilize overnight rates [14][15] Economic Context - The Fed's assets-to-GDP ratio fell to 21.6% in September, a level not seen since Q3 2013 [25] - The remaining pandemic-era Special Purpose Vehicles (SPVs) are declining, with only the MSLP remaining at $3.7 billion [23]

Core Insights - Bitcoin (BTC) has surged to its highest price in over two months, reaching $119,455, following a U.S. government shutdown that may create a positive liquidity impulse in the financial system [1][2] - Other major cryptocurrencies, including ether (ETH), XRP, solana (SOL), and dogecoin (DOGE), have also experienced price increases ranging from 4% to 7% [1] - The CoinDesk 20 Index (CD20) rose by 5% to 4,217 points, indicating a broader positive trend in the cryptocurrency market [1] Economic Context - The U.S. government shutdown resulted from a divided Congress failing to reach a funding agreement, which could delay the release of the nonfarm payrolls report [2] - This delay may lead to a positive liquidity expansion in the financial system, facilitating easier access to funding and potentially stimulating economic growth and risk-taking in financial markets [2] Federal Reserve Implications - If the ADP report serves as a leading indicator and the Bureau of Labor Statistics (BLS) report is delayed, the Federal Reserve may implement a 25 basis point rate cut in October, with further cuts possible by December [3] - Such actions could lower real yields and weaken the dollar, creating a favorable environment for Bitcoin and other cryptocurrencies [3][4] Market Sentiment - The recent ADP private payrolls report highlighted a weak labor market, reinforcing the case for continued rate cuts by the Federal Reserve [4] - Analysts suggest that Bitcoin's price increase following the government shutdown could signal the potential for a significant rally in the cryptocurrency market [4][5] Options Market - Deribit-listed options are currently perceived as inexpensive, providing a hedged way to capitalize on anticipated volatility in Bitcoin [6] - The U.S. government shutdown may act as a catalyst for increased Bitcoin movement, with steep contango in implied volatility making options attractive [6]

Core Insights - Federal Reserve liquidity facilities experienced lower than expected interest from Wall Street as the third quarter ended, despite a rise in repo rates indicating liquidity pressure [1][4][6] Group 1: Market Conditions - Quarter ends typically present challenging money market conditions, with firms reducing market participation and liquidity management becoming difficult due to volatile interest rates [2] - This quarter end was anticipated to be particularly turbulent due to declining overall liquidity levels as the Fed continues its quantitative tightening (QT) process [2][4] Group 2: Repo Rates and Liquidity - Repo rates spiked, with the general collateral rate opening at 4.45%, reaching a high of 4.60%, and closing at 4.35% [4] - Concerns arose regarding a potential repeat of the 2019 liquidity shortage that led to a spike in short-term borrowing rates, prompting Fed intervention [3][5] Group 3: Federal Reserve's Strategy - The Fed's QT aims to reduce excess liquidity injected during the COVID pandemic, but with reverse repo usage at negligible levels, QT is diminishing underlying liquidity, increasing market friction risks [4][5] - Market participants had initially estimated that the Standing Repo Facility (SRF) could see up to $50 billion in usage, but actual borrowing was only $11 billion, indicating less extreme conditions than expected [6] Group 4: SRF Functionality and Concerns - The SRF is designed to act as a buffer for temporary liquidity shortfalls, but doubts persist about its effectiveness, as firms may hesitate to use it for fear of signaling financial trouble [6][7]

Core Insights - Federal Reserve liquidity facilities experienced significantly lower interest from Wall Street than anticipated as the third quarter concluded quietly [1][2] Group 1: Market Activity - Money market funds and eligible firms deposited $49.1 billion at the Fed's overnight reverse repo facility, while the Standing Repo Facility (SRF) lent $6 billion, both figures falling short of pre-event estimates [2][6] - The quarter-end typically presents challenging money market conditions, with firms reducing market participation and liquidity management becoming difficult amid volatile interest rates [3] Group 2: Quantitative Tightening (QT) - QT aims to reduce liquidity in the financial system, reversing the excess cash injected during the COVID-19 pandemic, leading to declining overall liquidity levels [4] - The last instance of QT resulted in an unexpected liquidity shortfall in September 2019, causing a spike in money market rates and halting the drawdown process [5] Group 3: SRF Usage Concerns - The SRF, designed to act as a buffer for temporary liquidity shortfalls, has faced skepticism regarding its effectiveness, with concerns that firms may avoid using it to prevent signaling financial distress [7] - Economic factors, particularly higher borrowing rates on Monday compared to Tuesday, likely influenced the lower usage of the SRF [8] Group 4: Repo Rates - The general collateral or repo rate opened at 4.45%, peaked at 4.60%, and closed at 4.35%, indicating fluctuations in borrowing costs [9] - Prior to the Fed's SRF bids, the repo rate reached 4.43%, approximately 18 basis points higher than the rate offered at the SRF [9]