HTX DeepThink: Federal Reserve Ends Balance Sheet Reduction Signaling Liquidity, Bitcoin Seeks Breakout Momentum Amid Consolidation

On November 4th, Chloe (@ChloeTalk1), a columnist of HTX DeepThink and a researcher at HTX Research, analyzed and pointed out that the Federal Reserve announced that it will cease its balance sheet reduction on December 1st and will cut the policy rate to 3.75%-4.0%. This marks the end of the three-year-long Quantitative Tightening (QT) cycle. Powell stated that bank reserve balances are approaching the "plenty" lower bound, and ending the balance sheet reduction is aimed at avoiding further drainage of market liquidity. Chloe indicated that this policy shift is due to the tightening of three major liquidity indicators in the financial system: the overnight reverse repurchase (ON RRP) balance has dropped from a high of $2.6 trillion to nearly zero; the Treasury General Account (TGA) balance is maintained at around $983.9 billion; and bank reserves are around $3.3 trillion, close to the level during the 2019 liquidity stress. This is regarded as a "liquidity inflection signal" released by the Federal Reserve to guard against financial risks. On a macro level, the 10-year TIPS real yield fell to around 1.77%, the US Dollar Index hovered around 99.8, and the decline in real interest rates and the weakening of the US dollar provided support for risk assets. Meanwhile, Bitcoin's upward momentum since August has entered a consolidation phase, with the open interest in options hitting a new high of $63 billion, mainly concentrated on the Deribit platform. Chloe believes that the end of the Fed's balance sheet reduction indicates a rebound in marginal funding supply. If liquidity remains loose and ETF inflows strengthen, it may provide momentum for Bitcoin to resume its upward trend. However, short-term trends will still depend on subsequent macroeconomic data such as CPI, employment, and the rate-cutting pace at the December monetary policy meeting.