HTX DeepThink: The Fed ends balance sheet reduction, releasing signals of liquidity, Bitcoin seeks breakthrough momentum while consolidating.

According to a report by Deep Tide TechFlow on November 4, HTX DeepThink columnist and HTX Research researcher Chloe (@ChloeTalk1) analyzed that the Fed recently announced it will stop reducing its balance sheet on December 1 and will lower the policy interest rate to 3.75% to 4.0%, marking the end of three years of quantitative tightening. Powell stated that the overnight repo rate and funding market pressures indicate that bank reserves are nearing the “ample” lower bound, and ending the balance sheet reduction can avoid further draining liquidity. This policy shift is due to the synchronized tightening of three major indicators in the financial system. The balance of the overnight reverse repurchase agreement (ON RRP) has dropped from a peak of $2.6 trillion in 2022 to almost zero by the end of October. According to Reuters, continuing to reduce the balance sheet after the RRP is exhausted will directly compress bank reserves and raise short-term interest rates; the Treasury General Account (TGA) daily ledger shows that the end-of-October TGA balance was approximately $983.9 billion, with high reserves indicating that fiscal funds have not yet flowed into the market; bank reserves are about $3.3 trillion, close to levels during the funding stress in 2019. Overall, the Fed's choice to “halt balance sheet reduction” is a signal to release liquidity to prevent risk.

Trading Economics data shows that the 10-year TIPS real yield fell to about 1.77% on November 3, a decrease of 0.04 percentage points from the previous month; lower real interest rates reduce the opportunity cost of holding non-interest-bearing assets. The dollar index hovered around 99.8 on the same day, as the market awaited economic data delayed by the shutdown, with investors divided on whether there will be another rate cut in December. The decline in real interest rates and the weakening dollar provide support for risk assets.

Against the backdrop of macro uncertainty, Bitcoin's strong upward momentum since August of this year has entered a consolidation phase. The open interest of Bitcoin options reached a new high of $63 billion at the end of October, with 80% of positions concentrated on the Deribit platform, and a significant proportion of high strike price (between $120,000 and $140,000) contracts. Approximately $5.1 billion in options are set to expire, with the maximum pain point at $114,000; the Put/Call ratio is about 1.03, but the bullish positions account for nearly 60%, reflecting market expectations for further upward movement.

The end of the Fed's balance sheet reduction means marginal growth in the supply of funds; a decline in real interest rates and a weaker dollar may provide medium-term support for cryptocurrency assets such as Bitcoin and Ethereum. In the short term, after the end of the U.S. government shutdown, data such as CPI and employment, as well as whether the December interest rate meeting will continue to cut rates, are worth paying attention to. If economic data is strong or policies turn cautious, the market may continue to fluctuate; if liquidity remains loose and ETF inflows increase, it is expected to drive Bitcoin to restart its upward trend. In the long term, tracking changes in bank reserves, TGA balances, and RRP usage will help investors understand the liquidity cycle and its impact on the cryptocurrency market.