Delphi Digital: The Fed’s liquidity buffer has been exhausted, and a key resistance in the crypto market may be fading

Mars Finance reports that Delphi Digital stated on the X platform that the Federal Reserve’s reverse repurchase agreement (RRP) balance has dropped from a peak of over $2 trillion to nearly zero, indicating that its liquidity buffer has been depleted. In 2023, the size of the RRP was sufficient to buffer the Treasury General Account (TGA) replenishment by absorbing Treasury issuance, thereby avoiding the depletion of bank reserves. With the RRP balance bottoming out, that buffer no longer exists. Any future Treasury issuance or TGA rebuild will have to directly draw down bank reserves.

The Federal Reserve faces two choices: allow reserves to decline and risk another spike in repo rates, or directly expand the balance sheet to provide liquidity. Given the situation in 2019, the second option is more likely. This means the Fed will shift from withdrawing liquidity to re-injecting liquidity into the market—a significant change from the past two years.

Combined with the end of quantitative tightening (QT) and the upcoming reduction of the TGA, marginal liquidity has turned net positive for the first time since early 2022. A key headwind for the cryptocurrency market may be fading.