Analysis of the Impact of US Dollar Liquidity on Crypto Assets Market

Recently, investors' attention has shifted from skiing to the crypto market, particularly focusing on whether the "Trump market" can continue. Although the high expectations for the Trump camp's policies may lead to short-term negative impacts, the stimulating effect of dollar liquidity cannot be ignored.

Currently, the trend of Bitcoin is closely related to the pace of dollar release. The Federal Reserve and the U.S. Treasury control the dollar supply in the global financial market, which is a key factor affecting the market.

Bitcoin hit bottom in the third quarter of 2022 when the Federal Reserve's reverse repurchase tool (RRP) peaked. Subsequently, the U.S. Treasury reduced long-term bond issuance and increased short-term zero-coupon bond issuance, draining over $2 trillion from the RRP and injecting liquidity into global financial markets. This propelled the rise of Crypto Assets and the stock market, particularly a significant increase in U.S. large-cap tech stocks.

In the first quarter of 2025, the key issue is whether the positive stimulus from the liquidity of the US dollar can offset the disappointment that may arise from the implementation of Trump's policies. If so, market risks will be relatively controllable.

On the Federal Reserve side, the quantitative tightening policy is progressing at a pace of $60 billion per month, and it is expected to withdraw $180 billion in Liquidity from the market by mid to late March. At the same time, the RRP is nearing exhaustion, and the Federal Reserve has adjusted the RRP rate to further reduce its attractiveness.

The Treasury Department will spend funds from its General Account (TGA) at the Federal Reserve due to the debt ceiling issue. This situation is expected to continue until May or June, when the TGA balance may be exhausted.

Combining the actions of the Federal Reserve and the Treasury, it is expected that approximately $612 billion in liquidity will be injected into the market in the first quarter of 2025. This may be enough to offset the potential disappointment brought about by the implementation of Trump's policies.

Based on this analysis, the market may experience a local peak at the end of the first quarter. In 2024, Bitcoin entered a consolidation phase after reaching a high of around $73,000 in mid-March, and began to decline before the April tax deadline.

However, other factors must also be considered, such as China's credit policy, the Bank of Japan's interest rate decisions, and the potential devaluation of the US dollar. Nevertheless, the model for the impact of changes in RRP and TGA balances on the market remains reliable.

As an investment strategy, it is recommended to consider taking profits at the end of the first quarter and wait for the improvement of dollar liquidity conditions in the third quarter before re-entering the market. At the same time, the emerging decentralized science (DeSci) field is also promising, and relevant tokens have been purchased.

Overall, despite the uncertainty, the overall market outlook remains bullish. Investors should closely monitor market changes and adjust strategies in a timely manner.