Fed’s Secret Liquidity Boost, US-China Tensions, and Bitcoin’s $500B Loss

Andrew Chen
Bitcoin (BTC)

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Global markets are facing significant volatility as multiple factors collide, fueling uncertainty and heightening concerns over the potential for a financial crisis. Among the key developments, the Federal Reserve’s covert actions, rising U.S.-China trade tensions, and the alarming crash of Bitcoin are driving market instability.

US-China Trade War Heats Up

One of the major contributors to the growing market uncertainty is the escalating trade war between the U.S. and China. Last week, Chinese Foreign Ministry spokesperson Lin Jian strongly opposed President Donald Trump’s proposed tariffs, which now reach as high as 104% on certain Chinese goods. In response, China has indicated its intent to fight back, exacerbating the already tense trade relations between the two economic giants.

China’s economic woes are compounded by slowing exports and concerns over capital outflows, adding further pressure on the country’s financial stability. Meanwhile, the U.S. is grappling with a $6.5 trillion debt crisis, raising alarms over the long-term impact on the global economy.

Veteran analyst Peter Duan suggests that Trump’s tariffs are designed to push down U.S. Treasury yields. However, China’s decision to sell off U.S. Treasuries has had the opposite effect, driving yields higher and contributing to increased market instability.

The Fed’s Quiet Liquidity Injection

While the Federal Reserve has yet to announce any official changes in policy, its actions suggest otherwise. A key indicator of this is the dramatic drop in the Fed’s Reverse Repo Facility (RRP), which has fallen from over $2.5 trillion in 2022 to just $148 billion. Experts argue that this reduction signals a covert form of quantitative easing (QE), quietly injecting money into the financial system without making an official announcement.

While this liquidity boost has helped support markets in the short term, the sharp decline in RRP funds raises concerns about what will happen when this secret support runs out.

Bitcoin’s Struggles Amid Financial Instability

Bitcoin has emerged as one of the biggest casualties of this financial turbulence, losing over $500 billion since April 2. The cryptocurrency briefly dipped below $75,000 before making a slight recovery. Altcoins like Ethereum (ETH), XRP, Solana (SOL), Cardano (ADA), and Dogecoin (DOGE) have also been hit hard, suffering from low liquidity and market uncertainty.

Historically, Bitcoin has flourished when liquidity surged, leading experts to speculate that the reintroduction of QE in 2025 could send Bitcoin soaring once again. Former Bitmex founder Arthur Hayes even predicts that, if history repeats, Bitcoin could potentially reach $250,000 in the near future.

Also Read: Bitcoin Dips Below $78K Amid U.S.–China Trade War Escalation — Expert Warns: ‘Don’t Buy the Dip Yet’

As global tensions rise and financial markets remain under pressure, the coming months will be critical in determining whether the Federal Reserve’s secret liquidity injections can stave off a full-blown crisis or if more drastic measures will be required.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.

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