Delphi Digital reported in its report that the US Treasury Department will begin refilling the General Account (TGA) in the coming weeks and in the process will withdraw $500-600 billion in cash from the market in about two months.
The research firm explained that although this step may seem like a routine transaction for the market, it coincides with one of the most fragile liquidity environments of the last decade.
It was noted that the $550 billion NPL rollover in 2023 was absorbed by the Fed’s over $2 trillion reverse repo facility, strong bank reserves, and high foreign demand for Treasury bonds. However, according to Delphi Digital, none of these buffers exist today.
The Fed’s continued quantitative tightening (QT), the near-exhaustion of reverse repos, banks constrained by capital rules and losses, and the withdrawal of many foreign investors from China to Japan are all increasing market pressure. Therefore, every dollar the Treasury borrows this fall will be directly withdrawn from active market liquidity.
The report also highlights risks for cryptocurrency markets. It notes that during periods of liquidity shortages, high-beta assets (e.g., ETH and similar altcoins) tend to experience sharper losses compared to BTC. It also notes that if the supply of stablecoins in particular shrinks, ETH and risky assets could be further pressured during the TGA rollover period. However, it also notes that structural inflows from ETFs or corporate treasuries could offset these risks.
Delphi Digital argued that if the stablecoin supply expands, the NPL increase can be better absorbed compared to previous cycles, but if the supply contracts, the liquidity withdrawal will be reflected in the markets more quickly and strongly.
*This is not investment advice.