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The expectation of increased US dollar liquidity may lead to a rise in Bitcoin in Q1.
Analysis of the Impact of Dollar Liquidity on the Crypto Assets Market
The changes in the liquidity of the US dollar have a significant impact on the Crypto Assets market, especially the trends of Bitcoin. By analyzing the Federal Reserve's reverse repurchase agreements (RRP) and the cash flows of the US Treasury General Account (TGA), we can explore how the increase in US dollar liquidity drives the rise of Crypto Assets and stock markets.
In the first quarter of 2025, approximately 612 billion dollars of liquidity is expected to be injected into the market, which may have a positive impact on the Crypto Assets market. The trend of Bitcoin shows a clear inverse relationship with RRP: as RRP decreases, the price of Bitcoin rises.
The Federal Reserve's Quantitative Tightening (QT) policy is advancing at a rate of $60 billion per month, and it is expected to withdraw about $180 billion in Liquidity from the market by mid to late March. However, the decrease in the RRP balance will inject about $237 billion in Liquidity into the market, offsetting the effects of QT.
The U.S. Treasury is facing a debt ceiling issue and is expected to begin taking "extraordinary measures" in mid-January. Before the debt ceiling is raised, the Treasury can only spend funds from its TGA account. The current TGA balance is $722 billion, and it is expected to be completely exhausted between May and June.
Political factors may affect the process of raising the debt ceiling. Once the risk of default or government shutdown approaches, a last-minute agreement is expected to be reached to raise the debt ceiling. At that time, the Treasury will need to refill the TGA, which will negatively impact dollar liquidity.
Based on these factors, a local market top may occur by the end of the first quarter. However, other macroeconomic factors must also be considered, such as China's credit policy, the Bank of Japan's interest rate decisions, and the US dollar depreciation policy.
Despite the uncertainty, the overall market outlook is bullish. Investors may consider taking profits at the end of the first quarter, waiting for the dollar Liquidity conditions to improve again in the third quarter.
The decentralized science (DeSci) field is attracting investor attention, and some related tokens such as BIO, VITA, ATH, GROW, PSY, CRYO, and NEURON may be repriced.
The investment market is full of variables, requiring constant absorption of new information and adjustments. It is this uncertainty and challenge that makes the investment game engaging.