Analysis of the Impact of US Dollar Liquidity on the Crypto Assets Market

In the ski resorts of Hokkaido, the amount of snowfall determines the opening time of remote ski entrances. This year, due to record snowfall, these entrances opened earlier than in previous years. Meanwhile, in the Crypto Assets market, investors are shifting their focus to the market trends of 2025, particularly whether the so-called "certain political figure market" can be sustained.

The price movement of Bitcoin is closely related to the liquidity of the US dollar. Decisions made by the Federal Reserve and the US Treasury directly affect the supply of US dollars in the global financial market. Bitcoin hit its lowest point in the third quarter of 2022, coinciding with the peak of the Federal Reserve's reverse repurchase agreement (RRP). Subsequently, the US Treasury reduced the issuance of long-term bonds and increased the issuance of short-term zero-coupon bonds, withdrawing over $2 trillion from RRP, injecting liquidity into the market. This drove a significant rise in crypto assets and the stock market, particularly in US technology stocks.

In the first quarter of 2025, the key issue is whether the positive stimulus of US dollar Liquidity can offset the disappointment that may arise from the implementation of certain policies. If so, market risks will be relatively manageable.

On the Federal Reserve side, the quantitative tightening policy is advancing at a pace of $60 billion per month, and it is expected to withdraw $180 billion in Liquidity from the market by mid to late March. Meanwhile, the RRP balance is nearing exhaustion, and it is expected to inject $237 billion in Liquidity in the first quarter.

On the part of the Treasury, due to the debt ceiling issue, funds will be withdrawn from its general account (TGA). The TGA balance is currently $722 billion and is expected to be exhausted by May to June. This will inject significant Liquidity into the market in the first quarter.

In summary, the net injection of US dollar Liquidity in the first quarter is expected to reach 612 billion. This may be enough to offset other negative factors and drive the market up. However, the April tax season and the replenishment of the TGA after raising the debt ceiling may lead to a tightening of Liquidity, forming a market top.

Based on this analysis, the overall market is bullish in the first quarter, but a local peak may occur by the end of March. In addition to US dollar Liquidity, other macroeconomic factors such as China's credit policy, Bank of Japan policy, and exchange rate policy should also be considered.

In terms of investment strategy, it is possible to increase risk exposure in the first quarter but plan to reduce positions by the end of the quarter. The emerging decentralized science (DeSci) field may present investment opportunities. Overall, the market outlook is optimistic in the short term, but investors still need to closely monitor changes in various influencing factors.