Key Insights: Treasury’s $1T Cash Buildup Drains Market Liquidity, Pressuring Bitcoin
The U.S. Treasury’s nearly $1 trillion cash buildup has drained market liquidity, tightening funding conditions and putting pressure on Bitcoin’s price. In response, the Federal Reserve has resumed overnight repurchase agreement (repo) operations, injecting $30 billion in liquidity to ease short-term market stress.
Treasury Cash Balance Nears $1 Trillion
A new report from ET, a researcher at SoSoValue (Agarwood Capital), highlights the growing cash balance in the Treasury General Account (TGA) and renewed stress in funding markets as key factors behind tightening U.S. dollar liquidity. As the TGA approaches $1 trillion, it is effectively removing cash from circulation and reducing reserves in the banking system, resulting in tighter funding conditions.
At the same time, the spread between the Secured Overnight Financing Rate (SOFR) and the Federal Reserve’s target rate has widened to +30 basis points, indicating that banks are paying more to borrow short term.
Fed Resumes Overnight Repo Operations
In response to these tightening conditions, the Federal Reserve has reintroduced overnight repo operations, supplying nearly $30 billion in short-term liquidity as of October 31. This marks the first such intervention since 2019 and signals a shift away from passive balance sheet reduction toward direct market support aimed at easing funding stress.
The liquidity drain-related issues are also linked to the ongoing U.S. government shutdown. To prepare for potential spending delays, the Treasury has issued additional debt, which has increased the TGA balance, effectively pulling dollars out of the market.
Bitcoin’s Price Reflects Tightening Dollar Liquidity
Bitcoin has shown sensitivity to shifts in dollar liquidity. Unlike technology stocks, which have remained relatively stable, Bitcoin has experienced a decline since mid-October. The report connects this drop to rising funding costs and reduced dollar flow in the markets.
Data indicates that reverse repurchase agreements—a tool banks use to access short-term cash—have climbed back to $50 billion, pointing to heightened demand for safe and liquid assets.
According to ET, monitoring changes in TGA and reverse repo balances provides more accurate real-time insights into liquidity conditions than simply tracking the size of the Fed’s balance sheet.
Reopening Could Restore Liquidity and Support Bitcoin
The report suggests that market conditions may improve once the U.S. government reopens. As the author notes, “Historically, when the Treasury hoards cash and liquidity tightens to extremes, a market reversal often follows.” Forecasts indicate a potential congressional deal by mid-November, which would likely lead the Treasury to resume spending, reduce the TGA balance, and put dollars back into the market.
This influx of liquidity could alleviate pressure on risk assets such as Bitcoin. The researcher further notes that Bitcoin may be entering the final stage of its current correction. Should liquidity improve alongside possible rate cuts, the market could begin a new upward phase.
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