Analysis of the Impact of US Dollar Liquidity on the Crypto Assets Market

In the remote areas of Hokkaido's ski resorts, a type of bamboo plant called "Sasa" poses a challenge for skiing enthusiasts. This year's record snowfall in Hokkaido has opened these areas early, providing an excellent experience for skiers.

As 2025 approaches, investors' attention has shifted from skiing to the crypto market, particularly the impact of policy expectations on the market. Although there may be fluctuations in the short term, the stimulating effect of USD liquidity remains an important consideration.

Currently, the trend of Bitcoin is closely related to the pace of the dollar release. The Federal Reserve and the U.S. Treasury control the dollar supply in the global financial market, which is a key factor affecting the market.

Bitcoin hit bottom in the third quarter of 2022, when the Federal Reserve's reverse repurchase agreement (RRP) peaked. Subsequently, the U.S. Treasury reduced the issuance of long-term bonds and increased the issuance of short-term zero-coupon bonds, extracting over $2 trillion from the RRP, injecting liquidity into the global financial markets. This fueled a significant rise in Crypto Assets and the stock market, especially among large U.S. tech stocks.

In the first quarter of 2025, the key issue is whether the positive stimulus of dollar Liquidity can offset the disappointment that may arise from the implementation of policies. If so, market risks will be relatively controllable.

The Federal Reserve's Quantitative Tightening (QT) policy is advancing at a rate of $60 billion per month, and it is expected to withdraw $180 billion of liquidity from the market by mid to late March. At the same time, the Reverse Repurchase Agreement (RRP) tool is nearing exhaustion, with an expected injection of $237 billion in dollar liquidity in the first quarter.

The U.S. Treasury is facing a debt ceiling issue and may need to draw funds from its General Account (TGA). The current TGA balance is $722 billion and is expected to be completely exhausted between May and June.

Based on the operations of the Federal Reserve and the Treasury, it is expected that a total of 612 billion USD in dollar liquidity will be injected by the end of the first quarter. This may lead to a local market top at the end of the first quarter.

Despite the uncertainty of other macroeconomic factors, the changing model of RRP and TGA balances still has high credibility. Since September 2022, the increase in dollar Liquidity has directly driven the rise of Crypto Assets and stocks, even in the context of rapid interest rate hikes by global central banks.

Based on this analysis, the end of the first quarter may be a suitable time to sell, waiting for the liquidity conditions of the US dollar to improve again in the third quarter. As investors, one might consider increasing their risk tolerance during this period, such as investing in the emerging field of decentralized science (DeSci).

Overall, despite potential short-term fluctuations, there remains an optimistic outlook for the market in the first quarter of 2025. However, investors should remain flexible and adjust their strategies based on new information and market changes.