Eve of the US Dollar's Major Devaluation, Bitcoin is Awaiting the Final Spark
Original Article Title: BTC: Onchain Data Update + our views on last week's FOMC and the "big picture"
Original Article Author: Michael Nadeau, The DeFi Report
Original Article Translation: Bitpush News
Last week, the Federal Reserve lowered the target range for the federal funds rate to 3.50%–3.75%—this move has been fully digested by the market and was largely expected.
What truly caught the market off guard was the Fed's announcement to purchase $400 billion of short-term Treasury bills monthly, a move that quickly earned the label of "QE-lite" by some.
In today's report, we will delve into what this policy change actually means and what it doesn't. Additionally, we will explain why this distinction is crucial for risk assets.
Let's get started.
1. "Short-term" Outlook
The Fed delivered the expected rate cut. This was the third rate cut of the year and the sixth since September 2024. In total, rates have been lowered by 175 basis points, bringing the federal funds rate to its lowest level in about three years.
In addition to the rate cut, Powell also announced that the Fed will begin "reserve management purchases" of short-term Treasury bills starting in December at a pace of $400 billion per month. Given the ongoing stress in the repo market and liquidity within the banking sector, this move was entirely within our expectations.
The current market consensus view (whether on X platform or CNBC) is that this is a "dovish" policy shift.
The discussion of whether the Fed's announcement is equivalent to "money printing," "QE," or "QE-lite" immediately took over social media timelines.
Our Observations:
As "Market Observers," we have noticed that the market's psychological state still leans towards "Risk-on" sentiment. In this state, we anticipate investors to overly fixate on policy headlines, attempting to piece together a bullish thesis while overlooking the specific mechanisms through which policy translates into actual financial conditions.
Our view is that the Fed's new policy is favorable for the "Financial Market Pipeline," but not favorable for risk assets.
Where do we differ from the market's general perception?
Our points are as follows:
· Short-Term Treasury Purchases ≠ Absorption of Market Duration
The Fed is purchasing short-term Treasury bills, not long-term coupon bonds. This does not eliminate the market's interest rate sensitivity (duration).
· Long-Term Yield Not Suppressed
Although short-term purchases may slightly reduce future long-term bond issuance, this does not help compress term premium. Currently, about 84% of Treasury issuance is in short-term bills, so this policy does not materially alter the duration structure that investors face.
· Financial Conditions Not Broadly Eased
These reserve management purchases aimed at stabilizing the repo market and bank liquidity do not systematically lower real rates, corporate borrowing costs, mortgage rates, or equity discount rates. Their impact is localized and functional, not a broad-based monetary easing.
Therefore, no, this is not QE. This is not financial repression. It needs to be clear that the acronym is not crucial; you can call it money printing if you wish, but it does not deliberately suppress long-term yields by removing duration, as it is this suppression that would drive investors to the riskier end of the curve.
Currently, this scenario has not unfolded. The price movements of BTC and the Nasdaq index since last Wednesday also confirm this point.
What would change our view?
We believe BTC (and broader risk assets) will have their shining moment. But that will happen post-QE (or whatever the Fed terms the next phase of financial repression).
That moment will arrive when:
· The Fed artificially suppresses the long end of the yield curve (or signals to the market).
· Real Interest Rates Decrease (Due to Rising Inflation Expectations).
· Corporate Borrowing Costs Decrease (Powering Tech Stocks/NASDAQ).
· Term Premium Compression (Long-Term Rates Decrease).
· Equity Discount Rates Decrease (Forcing Investors into Longer Duration Risk Assets).
· Mortgage Rates Decrease (Driven by Suppressed Long-End Rates).
At that point, investors will smell the scent of "financial repression" and adjust their portfolios. We are not yet in this environment, but we believe it is coming. While timing is always difficult to gauge, our baseline assumption is that volatility will significantly increase in the first quarter of next year.
This is what we see as the short-term landscape.
2. A More Macro Perspective
The deeper issue is not the Fed's short-term policy but the global trade war (currency war) and the tension it creates at the core of the dollar system.
Why?
The U.S. is moving towards the next stage of its strategy: reshoring manufacturing, rebalancing global trade, and competing in strategically vital industries like AI. This objective is in direct conflict with the role of the dollar as the world's reserve currency.
The reserve currency status can only be maintained as long as the U.S. continues to run trade deficits. In the current system, the dollar is sent abroad to buy goods, which then flow back to the U.S. capital markets through treasury bonds and risk assets. This is the essence of the Triffin's Dilemma.
· Since January 1, 2000: Over $14 trillion has flowed into the U.S. capital markets (not counting the current $9 trillion in foreign-held bonds).
· At the same time, around $16 trillion has flowed overseas to pay for goods.
Efforts to reduce trade deficits will inevitably reduce the flow of recycling capital back to the U.S. market. While Trump boasts of countries like Japan pledging to "invest $550 billion in U.S. industry," what he doesn't explain is that Japan (and other countries) cannot simultaneously exist in manufacturing and capital markets.
We believe this tension will not be resolved smoothly. Instead, we expect to see higher volatility, asset repricing, and ultimately, a currency adjustment (namely, dollar depreciation and a shrinkage of the real value of U.S. Treasuries).
The core point is: China is artificially suppressing the value of the renminbi (providing an artificial price advantage to its export products), while the dollar is artificially overvalued due to foreign capital inflows (leading to relatively cheap import prices).
We believe that to address this structural imbalance, a mandatory devaluation of the dollar may be on the horizon. In our view, this is the only viable path to resolving global trade imbalances.
In a new round of financial repression, the market will eventually determine which assets or markets qualify as a "store of value."
The key question is, when the dust settles, whether U.S. Treasury bonds can still play the role of a global reserve asset.
We believe that Bitcoin and other globally recognized, non-sovereign store-of-value vehicles (such as gold) will play a far more critical role than they do now. The reason is that they are scarce and do not rely on any policy credit.
This is what we see as the "macro setup" being established.
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