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

In Hokkaido's ski resort, the level of snow cover determines when remote ski entrances open. This year, Hokkaido's record snowfall has allowed these entrances to open earlier. As 2025 approaches, investors' attention has shifted from skiing to the Crypto Assets market, with particular focus on whether the "certain politician's market" can be sustained.

The trend of Bitcoin is closely related to the liquidity of the US dollar. The Federal Reserve and the US Treasury control the supply of US dollars in the global financial market, which is a key factor influencing the market. Bitcoin bottomed out in the third quarter of 2022, when the Federal Reserve's reverse repurchase agreement (RRP) peaked. Subsequently, the US 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 market, and driving up the prices of Crypto Assets and the stock market.

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 a certain political figure's so-called "pro-crypto" and "pro-business" policies. If so, market risks will be relatively controllable.

On the Federal Reserve side, the quantitative tightening (QT) policy is proceeding at a pace of $60 billion per month, expected to withdraw $180 billion in Liquidity from the market by mid to late March. The reverse repurchase agreement (RRP) tool is nearing exhaustion, and the Federal Reserve has adjusted the RRP rate to further reduce its attractiveness. It is expected that the RRP will approach zero at some point in the first quarter, which will inject $237 billion in Liquidity into the market.

On the part of the Treasury, due to the debt ceiling issue, it is expected to spend funds from its General Account (TGA). The current balance of the TGA is $722 billion, and it is expected to be depleted between May and June. This will inject a large amount of liquidity into the market. Once the debt ceiling is raised, the Treasury will need to replenish the TGA, which will have a negative impact on dollar liquidity.

Based on the combined actions of the Federal Reserve and the Treasury, approximately $612 billion in liquidity is expected to be injected into the market in the first quarter of 2025. This may be enough to offset potential policy disappointment and maintain positive momentum in the market.

Based on this analysis, a local market top may occur by the end of the first quarter. Investors may consider taking profits by the end of March, waiting for the dollar liquidity conditions to improve again in the third quarter.

It is worth noting that there are other factors that may affect the market, such as China's monetary policy, the Bank of Japan's interest rate decisions, and the potential depreciation of the dollar relative to other currencies. The uncertainty of these factors makes market predictions challenging.

Nevertheless, based on past experience, an increase in US dollar Liquidity is likely to drive up Crypto Assets and stock markets. Investors may consider adopting a more aggressive investment strategy in the first quarter, but they should also closely monitor market changes and adjust their positions in a timely manner.