Fed reverse repo hits $2.3 billion, but what does that mean for crypto investors?
Investors avoid risky assets during a crisis, but excessive liquidity in financial institutions could also be good for cryptocurrencies.
 recently launched an attempt to shrink its balance sheet by $8.9 trillion by halting billions of dollars in Treasury bill and bond purchases. The measures were implemented in June 2022 and coincided with the total crypto market cap falling below $1.2 trillion, the lowest level seen since January 2021.</p>
<p>A similar move happened for the Russell 2000, which reached 1,650 points on June 16, levels not seen since November 2020. Since that drop, the index has gained 16.5%, while the The total crypto market capitalization was unable to recover the $1.2 trillion level.</p>
<p>This apparent disconnect between crypto and stock markets has investors wondering if the Federal Reserve's growing balance sheet could lead to a longer-than-expected crypto winter.</p>
The Fed will do whatever it takes to fight inflation
<p>To mitigate the economic slowdown caused by the restrictive measures imposed by the government during the Covid-19 pandemic, the Federal Reserve added $4.7 trillion to bonds and mortgage-backed securities from January 2020 to February 2022.</p>
<p>The unexpected result of these efforts has been 40 years of high inflation, and in June U.S. consumer prices jumped 9.1% from 2021. On July 13, President Joe Biden said June inflation data was )
“It is essential that we bring inflation down to our 2% target if we are to have a prolonged period of good labor market conditions that benefit everyone.”
This is the main reason why the central bank is withdrawing its stimulus activities at unprecedented speed.
Financial institutions have an abundance of liquidity problemA "repurchase agreement", or repurchase agreement, is a short-term transaction with a guarantee of repurchase. Similar to a secured loan, a borrower sells securities in exchange for an overnight funding rate under this contractual agreement.
In a "reverse repurchase agreement", market participants lend money to the US Federal Reserve in exchange for US Treasury bills and agency-backed securities. The lending side includes hedge funds, financial institutions, and pension funds.
Investors avoid risky assets during a crisis, but excessive liquidity in financial institutions could also be good for cryptocurrencies.
“It is essential that we bring inflation down to our 2% target if we are to have a prolonged period of good labor market conditions that benefit everyone.”
This is the main reason why the central bank is withdrawing its stimulus activities at unprecedented speed.
Financial institutions have an abundance of liquidity problemA "repurchase agreement", or repurchase agreement, is a short-term transaction with a guarantee of repurchase. Similar to a secured loan, a borrower sells securities in exchange for an overnight funding rate under this contractual agreement.
In a "reverse repurchase agreement", market participants lend money to the US Federal Reserve in exchange for US Treasury bills and agency-backed securities. The lending side includes hedge funds, financial institutions, and pension funds.
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