Jaipur (CoinChapter.com) — The US Federal Reserve has increased the payout for the excess cash parked by banks and money market funds in its custody. Meanwhile, Bitcoin continues to remain in a state of stupor.
Almost $1 Trillion
Key interest rates will see an uptick in 2023. But for now, the Federal Reserve raised reverse repo program interest rates on Wednesday. Also, the rate of interest on excess reserves has been bumped up from 0.10% to 0.15%.
What followed later is a record inflow of cash from banks and money market funds. Demand has been high since April this year. However, after the critical inflation tightening decision, Thursday saw a whopping $250 billion dumped in the Fed’s garden.
Repo transactions precede reverse repo transactions. Under a repo, the Fed and banks agree to conduct an exchange of securities for a specified period. With reverse repo, involved parties reverse the deal with the securities issuer earning slightly higher than the original price of the assets. The Fed utilizes these tools to control the flow of money in the market.
Since April, cash worth almost $1 trillion has found its way to the reverse repo program. All of this is to milk the 0.05% return that the Fed has committed as overnight payout starting Thursday. Earlier, the return was nothing (read 0%).
The host of the “Tales from the Crypt” Bitcoin podcast, Marty Brent, was quick to comment on this development. “As the Fed’s balance sheet crosses $8T overnight reverse repo markets are approaching $800B. That’s a lot of cash frothing in the banking system.”, he tweeted today.
DXY To Sky
The US Dollar had already begun its ascent on the back of the Fed’s critical interest rate uptick update. But after the record surge in cash parked with the Fed due to reverse repo rate and interest on excess reserves hike, the greenback is on a tear.
The DXY index has printed back-to-back green candles on the daily chart. From what it appears, the momentum doesn’t appear to die down anytime soon. The uptrend has pushed the index well above the crucial 20, 50, and 200-day moving average (MA) lines.
Bitcoin In Stupor
The scenario for Bitcoin is opposite to that of the US Dollar. In fact, that’s how it’s always been. While the news came as an incredible surprise for capital market participants, things aggravated the bearish front for the USD.
Money market funds and investors have gone the cash way to realize as much benefit as possible from the US Dollar’s rise. While this, the BTC/USD pair has continuously kept slipping on the daily. The pair remains suppressed below the 200-day and 50-day MA lines and barely supported above the 20-day MA. A death cross could further disturb the momentum.
While bearish signs loom large for bitcoin, there are still hopes for investors. Certain indicators have reinstated the bullish sentiment for BTC and are pointing towards the continuation of the bullish trend.