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MikybullCrypto 313 days, 0 hours ago

In this article, I will focus on the liquidity cycle since Bitcoin is very sensitive to liquidity.

Key Takeaway from this article;

  • Global liquidity level and impacts.
  • Fed net liquidity and interest expense
  • Probability of no further hike in terminal rate in forthcoming FOMC meeting.

Global liquidity has been ample according to BofA. 2022 witnessed global liquidity contraction coupled with UK gilts crisis which US intervention prevents another potential GFC.

Following up to the weeks of debt ceiling suspension, TGA has been witnessing depletion for interest payments expenses accounted about net of $68 billion operating loss. This is kind of temporary QE.

The rising of Fed net liquidity attested to this temporary QE I mentioned above. Also note that BOJ, PBOC, and Fed contributed immensely to the expansion of global liquidity but the main question worrying traders is can it be sustained? This leads me to point out another negative scenario as regards the liquidity cycle.

$296bn T issuance is about to hit the market next week but traders concern are who are going to be the buyers.

Next week is going to be crucial for the market and volatility will be intense since market is completely unaware of Fed next terminal policy rate-either to pause or hike rate by 25bps.

As Fed clearly stated that they are data dependent in making any monetary policy, current rate being at restrictive level and 26% CME probability of further hike point to the fact that Fed might probably pause this month. If the Fed truly pause rate hike this month then it is very positive for liquidity since Repo might be the major buyers of the Treasury issuance this coming week.

Global supply-chain pressure is easing significantly. Another positive effect for inflationary pressure reduction. CPI data is coming out next week and I will update further on the impact on liquidity cycle. Is very vital to close attention to Japan economy and inflation pressures that might likely lead BOJ to raise which will debase US currency.

Final thoughts

S&P 500 has been a close interest for both investors and speculators. It witnessed 23% rise from its October 2022 low, 12% away from attaining the ATH. Net shorts position on the S&P 500 is above 50% and if this shorts position are wrong then is going to be a massive cascading of liquidation hence reaching the previous ATH will be easy. I strongly believe that Bitcoin will witness blow off top this year amidst this regulation crackdown if history proves to repeat. This is all for today.

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