“The Big Short” author and renowned investor Michael Burry recently issued a firm warning regarding the Federal Reserve's plan to buy $400 billion in Treasury bills (T-bills) in one month. He believes that this Fed initiative exposes the structural vulnerability of the American banking system, rather than the stability perceived by the market. Furthermore, this policy direction could exert new downward pressure on Bitcoin (BTC) and the cryptocurrency market as a whole.
The president of the Fed, Jerome Powell, indicated that this purchase of securities was a "reserve management purchase" and not quantitative easing (QE). However, Burry emphasizes that the Fed continues to expand its balance sheet when the banking system is under pressure, which shows that the market remains dependent on liquidity. He insists that now, bank reserves exceed 3 trillion dollars, well beyond the 2.2 trillion dollars before the regional banking crisis of 2023. He warns that if the banking system has to rely on such a "lifeline" in liquidity, it is not a strength but a fragility.
Burry also indicates that the Fed, after the end of quantitative tightening (QT), has once again injected liquidity through repurchase operations (repo), which allowed for a short-term recovery of cryptocurrency assets, but this is not a sign of a healthy recovery. He advises the market to be cautious regarding recent Wall Street recommendations concerning bank stocks and personally prefers to direct his funds, beyond the FDIC insurance cap, towards money market funds in Treasury bills (TMF).
Moreover, the U.S. Treasury Department is increasing the issuance of short-term securities, while the Fed buys these short-term debts to avoid a rise in the yields on 10-year bonds. According to analysts, the repo market continues to experience fluctuations, which could push the Fed to adopt more aggressive liquidity measures by the end of the year.
In a context of weak macroeconomic sentiment, the cryptocurrency market is also under pressure. Bitcoin has dropped by more than 2% in the 24 hours leading up to the expiration of options, reaching a low of 89,459 dollars, and is currently hovering around 90,000 dollars. Analysts warn that BTC has failed to stabilize above the 93,000 to 94,000 dollar range and might short-term fall back towards the 85,000 dollar support. On-chain data shows an increase in selling pressure from miners, notably the massive sale by Marathon Digital of 275 bitcoins, valued at over 25.3 million dollars, which adds to the bearish mood of the market.
Overall, changes in macroeconomic liquidity and risk signals in the banking system are redefining market expectations. Burry's warning highlights a potential financial vulnerability, and the short-term trend of Bitcoin still seems to be under pressure.
