The Bitcoin Layer Bitcoin & Liquidity Academy 3: Primary Dealers, U.S. Treasuries & the Fed
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Sep 17, 2025 Nik dives into the intricate U.S. Treasury market and the pivotal role of primary dealers. He unpacks how the Federal Reserve manages its balance sheet through quantitative easing and tightening. The discussion highlights how treasuries transition from issuance to investor portfolios, along with the concept of liability-driven investing. Gain insights into how these elements shape the long-term demand for treasuries and Bitcoin's significance within the larger liquidity framework.
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Scale Of Treasuries Versus Fed
- U.S. Treasuries ($37T) are large relative to Fed assets and other markets, shaping global liquidity.
- The Fed's balance sheet (~$6.5T) is small versus the Treasury market, so Fed actions shift but don't fully dominate treasury supply.
How QE Changes Treasury Supply
- The Fed's SOMA portfolio expanded through QE cycles and contracted during QT attempts, reflecting active balance-sheet policy.
- QE removes treasuries from market inventories by placing them on the Fed's balance sheet, shrinking available supply.
Composition Of Fed Liabilities
- Fed liabilities include currency, the Treasury General Account, reverse repos, and bank reserves held at the Fed.
- Reserves are bank deposits at the Fed and act as a preferred, counterparty-free liquidity buffer for banks.