Delphi Digital: The Federal Reserve's liquidity buffer has been depleted, and a key resistance in the crypto market may be fading

Delphi Digital stated on platform X that the Federal Reserve's reverse repurchase agreement (RRP) balance has fallen from a peak of over $2 trillion to nearly zero, indicating that its liquidity buffer has been exhausted.

In 2023, the scale of RRP was sufficient to buffer the Treasury General Account (TGA) replenishment by absorbing Treasury bond issuance, thereby avoiding the depletion of bank reserves. With the RRP balance hitting rock bottom, that buffer no longer exists. Any future Treasury bond issuance or TGA rebuilding must directly consume bank reserves.

The Federal Reserve faces two options: allow reserves to decline and risk a resurgence of soaring repo rates, or directly expand the balance sheet to provide liquidity. Given the situation in 2019, the second option is more likely. This means the Federal Reserve will shift from withdrawing liquidity to re-injecting liquidity into the market, marking a significant change from the past two years.

Combined with the end of quantitative tightening (QT) and the impending reduction of the TGA, marginal liquidity has turned net positive for the first time since early 2022. A key resistance in the cryptocurrency market may be fading.