The recent news that the US Federal Reserve might not cut interest rates this year sent shivers down the spine of investors, causing a widespread decline in the crypto market. Bitcoin, the bellwether of the crypto space, dipped below the crucial $60,000 mark, dragging other digital assets down with it. However, with much of the bad news seemingly priced in, there are signs that the crypto market may be nearing a bottom and poised for another surge. The key to this potential surge might lie not in a rate cut by the Fed, but rather in the upcoming quarterly refinancing announcement (QRA) from the US Treasury Secretary.
Understanding Two Key Concepts: QRA and TGA
To understand how the Treasury Department can influence the crypto market, we need to delve into two key concepts: the Quarterly Refunding Announcement (QRA) and the Treasury General Account (TGA). The QRA, issued by the US Treasury Secretary every quarter, details the government's borrowing needs for the next three months. This includes the size and duration of new bonds to be issued, as well as the targeted balance for the TGA.
The TGA acts as the US government's checking account, holding tax revenue and other incoming funds before they are disbursed for spending. The balance in the TGA is crucial because it reflects the amount of immediate liquidity available to the government.
Since investors no longer anticipate many rate cuts this year, the big focus for crypto markets now shifts from Federal reserve's decision towards announcement concerning the Treasury General Account level.
Why QRA and TGA Matter for Crypto Market:
The QRA and TGA hold significant weight for the crypto market. The size of the planned bond issuance is a key indicator. A larger issuance suggests the government needs to borrow more, potentially disincentivizing investors from riskier assets like cryptocurrencies and pushing them towards safer options like bonds. Conversely, a smaller bond issuance could have the opposite effect, injecting more liquidity into the market and potentially boosting crypto prices.
The balance level in the TGA is another crucial factor. A declining TGA balance indicates the government is spending down its reserves, which could necessitate increased borrowing and potentially more liquidity being released into the market. This could benefit cryptocurrencies. The current balance of around $750 billion in the TGA is a level worth watching for crypto investors.
Why the US Needs Liquidity in 2024
There are two main reasons why the US government might need to release more liquidity into the market this year. Firstly, the US government previously issued a significant amount of debt to finance pandemic relief programs. A large portion of this debt is maturing in 2024, with upcoming bills and coupon redemptions placing a strain on the treasury. To meet these obligations, the US needs additional funds or liquidity.
Secondly, with the US presidential election looming later this year, the Biden administration might feel pressure to bolster the market sentiment to improve its chances of re-election. This could incentivize policies that favor increased liquidity, potentially benefiting the crypto market.
Conclusion
The focus of the market has shifted from the Federal Reserve's interest rate decisions to the upcoming announcements from the US Treasury Department, particularly those concerning the TGA level. With the potential for increased liquidity injections due to upcoming debt obligations and political considerations, the crypto market might be poised for a resurgence despite the recent slump. Investors should keep a close eye on the QRA announcements and the TGA balance for clues about the future direction of the crypto market.
