Before I speak of a market that has grown sixty times in size in less than a year, let me provide a little bit of context to this growth with a brief intro and setup. There is literally no one I’ve met in the BTC community that agrees with my assessment that BTC was a Central Bank/State sponsored creation to divert money away from gold to help prop up the US dollar. This doesn’t mean this hypothetical person that understands my BTC origin story doesn’t exist. I feel as if I met a number of BTC investors over the years that seemed to want a “feel-good” origin story attached to BTC, like it was an invention of the most altruistic, cypherpunk to walk planet Earth (as “Satoshi” has never cashed in a single satoshi of his massive multibillionaire fortune in BTC) to free mankind from the chains of fiat currencies, yet know deep down inside that this origin story is likely false. Such a belief is necessary to counterbalance the incessant greed that reigns over the cryptocurrency community displayed by the larger players and to validate the HODL meme, and such a fairy tale origin story is exactly what is necessary to convince investors to HODL against their best interests.
For example, the Intergovernmental Panel on Climate Change (IPCC) has been one of the most quoted organizations regarding human behavior, carbon-emission driven global warming in the entire world. This is a feel-good story that was readily embraced by the masses due largely to IPCC articles because who among us wouldn’t want to do our part to “save the Earth.” Unfortunately, one of their very own, Mr. Ottmar Edenhofer, the joint Co-Chair of the Intergovernmental Panel on Climate Change (IPCC) Working Group III Mitigation of Climate Change, summarized the UN’s half-century focus on climate change hysteria as follows: “One has to free oneself from the illusion that international climate policy is environmental policy. This has almost nothing to do with the environmental policy anymore, with problems such as deforestation or the ozone hole…We redistribute de facto the world’s wealth by climate policy.”
Climate change is an oxymoron, because over time, the climate is always changing and never static. However, if you attach the climate change policy narrative to a need to change human behavior because of the unproven idea that human behavior is causing climate change, in addition to naturally occurring climate change that always happens, then you have a “feel good” origin story that can be used to enact policies to redistribute wealth and create carbon credit billionaires like Al Gore to enrich the unethically rich at the expense of the middle class and poor.
In any event, this article is not about the fake science that has dominated IPCC reports, despite the reality of climate change, so let’s return to the topic at hand. The above digression was simply meant to illustrate how easy it is to sell millions on an idea, even if the idea may be completely fabricated, as long as the idea is wrapped in pretty paper and tied with a pretty bow. Whether or not the speculation that BTC was created for the purpose of freeing humanity from the enslavement of fiat currencies doesn’t detract from the fact that this narrative has served this purpose of diverting money away from fiat currencies’ former Public Enemy #1, physical gold, quite well since its creation.
In addition, since reaching a $100B market cap at the end of October 2017, BTC’s market cap has increased over eight times to a market cap of $837B as of February 2022. And though the global market cap of $12.2 trillion of gold at the present day spot gold price of about $1,850 per ounce amounts to a market cap 14.5 times that of BTC, in November of 2021, the total global market cap of cryptocurrencies was nearly $3 trillion, a figure that is a significant percentage of the total gold global market cap. And even though nearly half that market cap had been wiped out as of the end of January 2022, at $1.7 trillion, that still amounts to a significant percentage of the estimated global market cap, even if it is highly likely that this market cap is underreported (per the explanation provided here).
Yes, that was a lengthy preface, and you may ask why the long set-up to the question, “What market more than sixty times in just the last ten months?” Number one, I wanted to establish the absurdity of this market growth by pointing out that as much as Bitcoin has been in the media headlines non-stop for the past four years, its market cap has only grown a little more than eight times in more than four years, as compared to this market’s growth of sixty times in just ten months. Furthermore, I wanted to point out that in topics of finance (and global warming has most definitely been a profit making business for decades), a propaganda narrative is almost always attached from day one, embraced and accepted by the entire world, that contributes to massive growth of such markets. However, the growth of this market reflects just the opposite. The massive growth of this financial market has been met by complete silence and zero coverage by the mass financial media, a fact that indicates that Central Bankers would much rather you not know about the growth of this market, and that widespread knowledge of this explosive market growth does not serve their agenda, whereas incessant media coverage of global warming and cryptocurrencies does.
In the last ten months, from last April to present month, the market cap of cryptocurrencies has grown about ten times. So any way we slice a growth rate of sixty times in ten months, this growth rate is massive and extremely important. What is this market? It is the overnight reverse repurchase (ONRRP) market, and the sixty time growth rate is readily apparent in the below charts. The ONRRP market size hit an astonishing high of nearly $2 trillion on the last day of last year. Since then, the ONRPP market has settled slightly, but it still remains extremely elevated at a $1.7 trillion daily mark as of February 2022. This figure is a startling sixty times greater than the $30B or so that was traded daily just as of April of last year.
And though I realize that, when compared to the asset size of some of the largest financial institutions like Goldman Sachs, $1.7 trillion is not a massive figure, it is a massive amount if one realizes that all bankers realize that keeping that much in cash on their books is net negative due to soaring rates of real inflation, and that no banker likes keeping large amounts of cash on their books if at all possible. Though the mid-2021 figure for total US deposits grew to more than $18.1 trillion by the end of last year, this figure is not representive of the total cash in the US banking system, and in fact, typically less than 1% of MMF deposits were kept in cash reserves (despite many Americans still erroneously believing the RRR is 10% for US banks), especially since on 15 March 2020, the Feds effectively lowered the RRR of US banks to 0%, as stated in this press release, that they had “reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period.”
I have spoken, quite frequently on my news site, of the importance of the repurchase markets in providing liquidity to the US banking sector in past years. In fact in October of 2020, I wrote in this article the following observation:
“In the first two months of 2020, US Central Bankers reduced the aggregate operation limit of each operation to $30 billion to $120 billion, leading the mass financial media to falsely report that the US banking system had shored up its problems. However, by early March of this year, US Central bankers ramped up the aggregate operation limit of each operation back up to $500 billion, where it has since remained as of October 2020.”
However, as you can see in the below chart, the massive increase in the operational limit per institution in the overnight repurchase (ONRP) markets was merely a diversionary tactic used by the Feds to distract people away from the ONRRP in which operational limits exploded, and more importantly, were utilized. Clearly, we can observe that the massive increases in operational limits in ONRP markets were unnecessary as utilization never increased.
For the benefit of those that do not understand what role is played by the ONRRP markets, I’ll provide a brief explanation of the differences between the ONRP and ONRRP markets. The overnight repo (ONRP) market allows for different market participants to swap treasuries, or other securities like MBS (mortgage backed securities) issued or fully guaranteed by federal agencies, with the Feds for cash to cover short-term cash needs. In ONRRP markets, as implied by the name, these transactions are reversed. The New York Fed buys securities, normally US Treasuries, from banks in exchange for the receipt of cash reserves held by banks in transactions that drain overnight liquidity from banks.
The Simple Explanation of Why
Thus, a quick and dirty explanation of why the ONRRP market exploded by more than sixty times in less than a year is the following: Due to relentless QE and low interest rates for thirteen years following the 2008 global financial crisis, US commercial banks have excess massive cash reserves and would rather park them overnight with the Feds in the ONRRP market rather than use these excess cash reserves to invest in stocks as they normally do or to buy cryptocurrencies, as erroneously predicted by BTC analysts after BTC ETFs and ETPs were introduced. Simply translated, this means that commercial banks would rather settle for a tiny yield than to invest in assets in which they don’t favor the current risk: reward payout. I explained here, before the introduction of some new and highly anticipated BTC ETFs, why the introduction of new BTC ETFs would lead to higher price volatility and massive BTC price decreases, in direct contradiction to the consensus narrative provided of much higher BTC prices.
The fact that US commercial banks have massive cash reserves but are choosing not to pour them into BTC ETFs also supports my thesis presented about the probable future effects of BTC regulations on BTC prices later this year, presented here in a post titled “Why USDT Regulation Will Cause Another Significant Dip in BTC Prices” (Editor’s Note: Sorry folks, this particular link is the only one in this article not available to everyone, but that is available only to skwealthacademy patrons).
This concludes Part I of this article. To read Part II of this article, that includes “The Complex Explanation of Why”, and “The Mind-blowing Conclusion”, please subscribe for FREE to my substack newsletter he
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