The Implicit Expansion of the US Monetary Policy and Its Impact on the Crypto Market

Recently, the crypto market has undergone a significant adjustment. This adjustment was expected and is the result of multiple factors, including the U.S. tax season, uncertainty regarding the Federal Reserve's policy outlook, the Bitcoin halving effect, and the slowing growth of U.S. Bitcoin ETF funds. This adjustment has brought necessary cleansing to the market, with some speculators possibly temporarily exiting to observe, while long-term holders may continue to accumulate mainstream encryption assets such as Bitcoin and Ethereum, as well as some highly volatile altcoins.

The Federal Reserve recently announced that it will reduce the scale of quantitative tightening (QT) at the May 2024 meeting. By lowering the QT pace from $95 billion per month to $60 billion, it effectively increases dollar liquidity by $35 billion per month. Combined with interest on reserve balances, reverse repurchase agreement payments, and interest payments on Treasury bonds, the reduction in QT actually increases the amount of stimulus injected into the global asset markets each month.

The quarterly financing announcement (QRA) from the U.S. Treasury is also worth noting. In the second quarter of 2024, the Treasury expects to borrow $243 billion in privately held net market debt, which is $41 billion higher than previously estimated. This is mainly due to tax revenues falling short of expectations. To address this situation, the Treasury plans to increase the issuance of short-term bills, which may help inject more dollar liquidity.

It is worth noting that the recent collapse of a regional bank has triggered a response from regulators. The Deposit Insurance Fund (DIF) provided $667 million in support to ensure that all depositors are fully protected. This practice effectively provides an implicit guarantee for all deposits in the U.S. banking system, equivalent to an increase of approximately $6.7 trillion in potential liabilities.

These policy measures together constitute a form of implicit monetary expansion. Although there is currently no large-scale liquidity injection, these policies lay the groundwork for potential inflation in the future. For the crypto market, these policies may gradually show their impact in the coming months.

In the short term, the crypto market may experience a bottoming out, a period of volatility, and a slow rise. It is expected that the price of Bitcoin may break through $60,000 and fluctuate between $60,000 and $70,000 until August. For investors, now may be a good time to increase positions, especially for some high-volatility altcoins.

Overall, although the recent changes in the United States' monetary policy have not directly led to a large-scale liquidity injection, they have created conditions for potential inflation in the future. This implicit monetary expansion may gradually impact the crypto market in the coming months, driving prices up.