Liquidity is surging like a tide, and the cryptocurrency market is like a sponge, ready to absorb this wave of capital once again.
I just carefully analyzed a chart, and the data made me stop my coffee — the pattern has re-emerged, and it's more intense than ever before.
In 2021, after the Federal Reserve launched a $480 billion bond repurchase plan, altcoins achieved an astonishing increase of 148 times in 117 days. Now, in December 2025, the Federal Reserve has just announced a $500 billion bond repurchase, and this time, altcoins have already achieved a 271 times increase in just 115 days.
This is not just a coincidence. When I delved into the data, I discovered a significant pattern: whenever the Federal Reserve opens the liquidity floodgates, the cryptocurrency market is always one of the first areas to react.
1 Liquidity Engine Starts: The Federal Reserve's Repurchase Operations
The Federal Reserve's Treasury repurchase operations are essentially a tool for injecting liquidity into the financial system. When the Treasury conducts a repurchase, it issues new bonds and uses the proceeds to repurchase older bonds with lower liquidity.
On the surface, this process appears to be 'budget neutral'—merely replacing old debt with new debt. However, in reality, it creates more leverage space for the financial system by increasing the liquidity of the bond market and reducing volatility.
The key mechanism is that Treasury repurchases enable relative value hedge funds to conduct high-leverage bond trading with lower margin requirements, indirectly increasing dollar liquidity in the financial system. This is why, despite Treasury repurchases not directly 'printing money,' they can produce effects similar to quantitative easing.
Currently, the U.S. Treasury General Account (TGA) balance is close to $1 trillion, with a large amount of funds locked in the Treasury account, effectively draining liquidity from the market. Once these funds are released through Treasury spending, they will rapidly push up the prices of risk assets.
2 Historical Comparison: Similarities and Differences Between 2021 and 2025
Looking back at 2021, the Federal Reserve absorbed nearly $480 billion in funds in a single day through overnight reverse repurchase agreements, setting a historical record. This operation occurred after massive stimulus following the COVID-19 pandemic, indicating that liquidity in the financial system was in a state of serious excess.
At that time, the Federal Reserve had just begun to signal a shift in monetary policy, while market funds were frantically searching for a 'floodgate.' The result, as we all know, was that the cryptocurrency market welcomed one of the largest bull markets in history shortly thereafter.
Fast forward to 2025, the situation has both similarities and obvious differences. The resemblance lies in the fact that the Treasury is also issuing a large amount of debt, with the TGA account balance continuing to rise, draining liquidity from the market in the short term.
But the differences this time are even more pronounced: the scale of debt is larger (U.S. debt has exceeded $36 trillion), inflationary pressures persist, and a so-called 'invisible QE' mechanism has emerged.
Arthur Hayes recently pointed out that the Federal Reserve injects funds into the market through the standing repo mechanism, effectively forming a form of disguised quantitative easing. As the use of this mechanism increases, global dollar liquidity rises, producing effects equivalent to QE.
3 Cryptocurrencies as Floodgates for Liquidity Reservoirs
The key framework for understanding this is: Dollar liquidity = bank reserves + circulating cash = total size of the Federal Reserve's balance sheet − overnight reverse repurchase (ON RRP) − Treasury TGA account.
This formula explains why even if the size of the Federal Reserve's balance sheet remains stable, an increase in the TGA account or ON RRP will drain liquidity, and conversely, a decrease will release liquidity.
Currently, we are at a critical juncture where liquidity is about to reverse. The U.S. government shutdown has set a historical record, but there are signs of easing in the bipartisan standoff. The market expects the government to reopen in mid-November.
Once the government reopens, the Treasury will initiate spending, and the TGA account balance will fall back from a high level, with locked liquidity returning to the market. Historical experience shows that risk assets typically experience a strong rebound during this phase.
Cryptocurrencies, especially altcoins, often become the first beneficiaries of this wave of liquidity due to their high liquidity and risk-seeking characteristics.
4 New Factors Unlike 2021: The Market Structure Has Changed
Although liquidity-driven market patterns are similar, the market environment in 2025 is fundamentally different from that in 2021.
The most obvious change is the significant increase in institutional participation. The launch of Bitcoin ETFs has provided traditional funds with a convenient entry point, and institutions like BlackRock have also launched Bitcoin ETFs in Australia.
The Trump administration ended its policy crackdown on the cryptocurrency industry, and the regulatory environment has become clearer. Meanwhile, traditional financial institutions like Standard Chartered announced plans to launch Bitcoin and Ethereum custody services in Hong Kong by 2026, marking an acceleration of the integration between traditional finance and the crypto world.
Another key change is the shift in the Bitcoin narrative. Arthur Hayes pointed out that Bitcoin is transitioning from a 'high Beta asset of NASDAQ' to a 'hedging tool against the decline of American exceptionalism.' This narrative shift has broadened Bitcoin's audience and increased its risk resistance.
New concerns have emerged in the market. Some analysts warn that more stablecoins like XUSD may carry higher risks of decoupling or insolvency, especially those relying on high-return strategies and having low transparency.
5 The Road Ahead: Opportunities and Risks Coexist
From a technical analysis perspective, if the current pattern is similar to that of 2021, we may still be in the mid-stage of this liquidity-driven cycle. After the Federal Reserve restarted repurchase operations in 2019, it ultimately led to the rebuilding of reserves and the initiation of QE4.
Although the Federal Reserve's recently restarted overnight repurchase operations have a scale of only $29.4 billion, far lower than the $49.7 billion in 2019, the symbolic significance is enormous. It indicates that the liquidity shortage has shifted from a phase-based phenomenon to a structural issue that may require more sustained policy responses.
I personally focus on several key signals:
First, the change in the U.S. Treasury General Account (TGA) balance, which is a direct indicator of liquidity release. Second, the SOFR-FDTR spread, which reflects the true cost of interbank funding. When these indicators turn, it usually means an improvement in the liquidity environment.
Unlike in 2021, we now have a more robust infrastructure to accommodate traditional capital inflows. But we must also be wary of the potential for a 'last drop' in the market, as liquidity tightness before the government reopens may trigger a short-term pullback.
As the Federal Reserve's repurchase operations progressed, the tide of dollar liquidity has begun to shift. This time, institutional investors are on high alert, with Bitcoin ETFs becoming a new liquidity bridge, and the market depth of altcoins is far beyond what it was in 2021.
When the liquidity floodgates open, funds will always flow to the places with the highest returns. The cryptocurrency market, with its high volatility and global liquidity, is likely to become the main beneficiary of this wave of capital once again.
This time, the stage is larger, participants are more numerous, and volatility may be more intense. Follow Xiang Ge for more first-hand information and insights into the crypto world, becoming your guide in the crypto space; learning is your greatest wealth!#巨鲸动向 #美联储降息 $ETH
