This week, the US financial market suffered a new liquidity crisis. The Federal Reserve had to inject about $ 99 billion in less than 24 hours.
The liquidity crisis has manifested itself in the so-called repo market – a system of short-term loans that allows banks to obtain cash on the basis of their bonds. Apparently, the demand for liquidity was so high that the creditors could not cover it.
The situation is worrying because the Federal Reserve has already injected $ 500 billion into the repo market to cover demand by the end of the year. In theory, this amount should have been repaid after maturing the short-term loans.
However, this week’s crisis proves that withdrawing these funds would cause problems. In addition, analysts estimate that the Fed will have to inject about $ 100 billion each month to keep the repo market afloat.
The Federal Reserve is trapped in a cycle of continuous printing of money and injecting liquidity to maintain market balance. If you ever decide to stop the process, a massive collapse of the financial market is almost guaranteed.
Does the crypto market win?
Finally, the repo market – and therefore the interbank liquidity – works only because of the massive printing of money. Many investors have already started to consider these alarm signals.
One of the assets considered to be protected from the effects of Federal Reserve policies is Bitcoin. After all, the crypto market has to win if the repo market freezes or if the stock markets fall.
In the last week, Bitcoin has grown from $ 7,200 to $ 8,400, while stock markets have fallen. An important factor was the escalation of tensions between the US and Iran. The liquidity crisis on the repo market has shown that the US economy (and beyond) is very fragile.
The pessimists are warning of a possible financial crisis of large proportions. While this is bad news for the global economy, it could create favorable conditions for an upward trajectory of the Bitcoin price, especially in combination with the future reduction of block rewards in May.