U.S economy, liquidity injections, and how they might help crypto & Bitcoin

Fed liquidity has surged by $395 billion since the start of the year, marking the largest ten-day hike in two years
Could this spark interest in riskier assets again?

In just under a month, two major market collapses have highlighted a notable change – an increasingly inverse relationship between broad economic trends and riskier investments. If the U.S. economy maintains its robustness, as demonstrated by adding 256K jobs in December, there might be an unexpected twist for the cryptocurrency market.

With that in mind, keeping a sharp eye on the U.S. economic calendar is more important than ever.

Unexpected opportunities ahead?

Given the Dollar Index (DXY) holding steadily above 109 and the 10-year Treasury yield climbing up to 4.79% – reaching its highest point in 14 months – it seems that investing in riskier assets such as cryptocurrencies or stocks might not be an immediate option.

In the past few days, the S&P 500 has shed approximately $800 billion in market value and dropped by 4.5% from its peak in December. Meanwhile, the crypto market has plummeted by 8% over the last week, going down from a value of $3.6 trillion. With these trends unfolding, it appears that it might be prudent to steer clear of riskier investments.

As an analyst, I’ve noticed an interesting development: The Federal Reserve’s net liquidity has increased by approximately $395 billion since the beginning of this year. This surge in liquidity might hint at a possible devaluation of the U.S. dollar. In simpler terms, if the dollar is devalued, each dollar would be worth less than it is now.

Remarkably, the Dollar Index has climbed to new peaks for four consecutive days, causing its Relative Strength Index (RSI) to exceed the overbought threshold. This could signal an impending correction, and if the dollar weakens, U.S. Treasuries might lose their appeal – a trend it’s wise to keep a close eye on in the coming days.

From my perspective as a researcher, I’m noticing a growing curiosity about potential liquidity infusions from the Treasury General Account (TGA). With the U.S. edging closer to its debt ceiling, there’s speculation that the Treasury might inject substantial funds into the market. This could potentially stir things up even more in the coming weeks.

Market still remains cautious

The increase in funds from the Federal Reserve and U.S. government is undeniably a positive signal, providing new resources for the market. Moreover, the expected “Trump effect” enhances this optimism. For the time being, things appear promising. Yet, it’s important to note that there’s a caveat:

The influx of liquidity signals a bullish trend, boosting the market with fresh capital. The anticipated “Trump pump” further fuels optimism. However, it’s crucial to remember that this positive outlook comes with a condition.

As the debt ceiling nears, investors might opt for secure, reliable investments instead of venturing into the unpredictable world of cryptocurrencies due to their volatility.

Read Bitcoin’s [BTC] Price Prediction 2025-26

What’s causing this? The increase in treasury yields is likely due to the Federal Reserve indicating a decrease in interest rate cuts, as well as the government anticipating these yields to help finance their capital.

With optimism in the air, everyone is looking towards the newly inaugurated government. The question remains: will they implement tax reductions to stimulate further financial fluidity? If so, this move might lead to a decrease in the value of the U.S. dollar and make U.S. Treasury bonds less attractive.

The situation demands it: Trump needs to show his commitment to fulfilling his pledges, or else the years leading up to 2025 might bring turbulence for markets that take on more risk.

2025-01-13 09:11

Unexpected opportunities ahead?

Market still remains cautious

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