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<\/p>\nBitcoin has crossed $42,000 overnight with it currently trading at $41,500 in a jump from $38,000 the previous day.<\/p>\n
There are numerous reasons, including potentially the fact money parked at the Fed in Reverse Repurchase Agreements has crossed $1 trillion for the first time.<\/p>\n
Reverse repos are short term purchase agreement where banks give cash to Fed in return for bonds with the Fed currently paying them 0.05% interest during the duration of that agreement.<\/p>\n
The big question is why this is now finding so much usage with the dominant explanation being that there’s just too much cash flowing around in the system.<\/p>\n
Banks don’t know where to park it and apparently they have no better place than a facility which pays 0.05% in interest, with the stock market plunge in China potentially being one contributor to this surge (pictured).<\/p>\n
An estimated $1 trillion has been lost in value in Chinese stocks trading in Asia and USA with that money potentially now temporarily parking before finding a new investment.<\/p>\n
Some may have gone towards bitcoin or are on their way, but some suggest this reverse repo surge may continue, potentially hitting $2 trillion.<\/p>\n
Deposited cash for banks is a liability so they try and balance by turning that liability into a bond asset, but it may be demand for bonds is now so high that it overspills to repo reserves.<\/p>\n
That still however implies people are holding too much cash instead of investing it, with the velocity of money continuing to plunge:<\/p>\n
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That’s while stocks have added another $26 trillion globally, or 30% of its previous all time high, with house prices increasing as well, as are commodity prices.<\/p>\n
Yet there’s still so much cash in the system, it’s happy to park at almost zero percent in interest while inflation reached 5.4% in June.<\/p>\n
One big reason may well be because wages are not quite keeping up, with all the tech giants announcing record profits waiting for somewhere to invest.<\/p>\n
All of that suggests asset prices will go higher to readjust for the new fiat supply with Fed maintaining the emergency measures while China is seemingly moving towards monetary easing. <\/p>\n