The Bitcoin Layer Liquidity Tightens AGAIN: What the Repo Market Is Telling Us
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Oct 31, 2025 Nik Bhatia dives into the latest shifts in the repo market and their implications for liquidity and Bitcoin. He explains the significance of the SOFR-IOBR spread and what declining reserves could mean for macroeconomic stability. The discussion covers the Fed's upcoming end to quantitative tightening and the intriguing concept of 'not-QE QE.' Additionally, the effects of dollar and yuan movements on global risk sentiment are analyzed, while the labor market data reveals insights into potential future rate cuts.
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Repo Spread Flags Systemic Tightness
- The SOFR-to-IORB spread widening signals repo market tightness and strains short-term funding.
- That tightness pressured the Fed to stop QT effective end-November and likely reverse reserve declines.
Reserves Must Rise Relative To The Economy
- Declining reserves as a share of banking assets and GDP must be reversed to support settlement and SOFR volumes.
- The Fed ending QT as of Nov 30 implies imminent balance sheet stabilization and eventual growth.
Monitor 'Not‑QE' Bill Purchases
- Watch for Fed 'not-QE' actions that expand the balance sheet via bills rather than duration exposure.
- Monitor repo market and bill demand as signals that commercial banks will expand balance sheets and liquidity will rise.