Whenever Bitcoin prices fall off the cliff industry observers scramble to find a reason beyond the technical indicators. Something fundamental must have caused the crash and one industry executive has fingered the FED\u2019s recent market meddling.<\/p>\n
Last week the US Federal Reserve pumped more than the entire crypto currency market capitalization back into money markets<\/a> in order to control lending rates. A surge in short term rates last week threatened to disrupt the bond market and the overall lending system which resulted in these overnight repurchase (repo) agreements.<\/p>\n Those cash injections have continued into this week as a further $100 billion floods into markets. According to an official statement<\/a> the central bank\u2019s schedule calls for another $75 billion of overnight repos to be sold every business day until October 10. Certain days will also be offering at least $30 billion worth of 14-day repos.<\/p>\n The FED appears to be back where it was roughly a decade ago, effectively buying US Treasuries from banks on an indefinite basis. According to a Bank of America research note;<\/p>\n \u201cFor all intents and purposes, this will be equivalent to QE, with scheduled purchases of securities. We estimate that over the first year, the Fed would need to buy roughly $400bn of Treasury securities to achieve an appropriate level of reserves, plus a buffer,\u201d<\/p><\/blockquote>\n The \u2018repo market\u2019 consists of short-term funding that banks and financial counter-parties regularly tap to lend each other trillions. It is making the news again for all the wrong reasons and is looking a lot like it did just before the 2007 housing market crash.<\/p>\n This week Bitcoin prices dumped 20 percent as $30 billion flooded out of the digital asset and back into fiat. Once support was broken BTC price plunged<\/a> to its longer term floor at $8,000 before settling just above that a few hours ago.<\/p>\n The question being asked by some industry observers now is: are the repo agreements and Bitcoin price action related. Ikigai fund manager Travis Kling thinks they are.<\/p>\n \u201cThe repo market situation is a symptom of a larger situation that has been dubbed the “dollar shortage”. If you drop a big rock in the middle of a pond, how far do the ripples go? All the way out. Getting smaller as they go. If you throw a wrench in the quadrillion dollar eurodollar market, how far out does liquidity hiccup? BTC 30-day circulating supply is <$20bn. Small ripple.\u201d<\/p><\/blockquote>\n Some smart investors that actually like and respect me say I'm crazy for thinking that Global Macro has a big effect on crypto. <\/p>\n I think they're crazy for thinking these two things are entirely unrelated. pic.twitter.com\/xYTSJVbCY7<\/a><\/p>\n — Travis Kling (@Travis_Kling) September 25, 2019<\/a><\/p><\/blockquote>\n\n