The curious case of “Reverse Repos”

1} Reverse repos going down, but what is it exactly?

There has been a lot of talk about repurchase agreements recently.

First, what the heck is a reverse repo?

It’s actually a facility at the Federal Reserve and it’s shorthand for Reverse Repurchase Agreement, or RRP. This is where it stands today and people are worried about what may happen. Let’s understand this first

It’s the opposite of a repurchase agreement, or repo, another Fed facility where you can go for a very short-term loan, say 24 hours (although they can be longer).

The Fed gives you money and when it’s time to repay the principal, you pay a little extra that we call interest. Repos are a way to inject liquidity almost instantly and prevent interest rates from going too high.

Reverse that whole process and you have a reverse repo.

You give the Fed money and when that short-term loan is up, you get your principal back with interest.

2} Wait, wait, wait – why are you loaning money to the people with a money printer? Excellent question.

Just as repos inject liquidity, reverse repos soak it up. When you loan money to Fed, they don’t do anything with it – it literally just sits on a spreadsheet overnight, removed from the dollars circulating through the economy. Those dollars cease to exist – temporarily.

When the Fed creates a dollar, it’s only about 10% of the total amount of money created because fractional reserve banking multiplies the initial dollar into a total of about 10.

So, if you can short circuit this part of the process, you neutralize 90% of the inflation. That’s what happens with reverse repos. The Fed “borrows” money and sits on it, preventing it from being lent out and multiplying.

3} It’s the same as when the Fed pays interest on reserves, paying banks to park their money in its vaults and not lend it out.

The need for it?

Both repos and reverse repos allow the Fed time to adjust the amount of money in circulation through their buying and selling of securities, or Open Market Operations (OMO).  

These going down could indicate that Fed expects the liquidity going down in the system, hence a lesser need to remove liquidity.

More market balance and less steering of economy by the Fed.

The global cryptocurrency market cap today: $1.65 Trillion

Daily change: -3.6% | Yearly change: 85.78% 

Bitcoin (BTC) is the largest cryptocurrency with a market cap of $828 Billion.

Weekly change: 1.59% | YTD change: 154.83%

Another important metric is Bitcoin dominance which can be used as a rough indicator of the relative strength of Bitcoin versus other cryptocurrencies. A high Bitcoin dominance means that Bitcoin has a large market share and is potentially more influential in the overall cryptocurrency market and vice-versa.

Bitcoin dominance: Current Year: 52.54% | Last year (Dec 2022): 39.84%

The market sentiment has greed levels in the higher range with current Bitcoin and Altcoin rally

Note: The data used is based on metrics like Volatility, Surveys, Bitcoin Dominance, Social and Google Trends. Source: Coinstats

Let's have a look at Ethereum supply changes post its merge to a PoS blockchain from PoW.

The significance of the chart - understand how the supply of Ethereum is decreasing post the merge, which means “deflationary economics” for the Blockchain

Supply change since merge POS -308,005 ETH

The graph highlights POS issuance since the merge. Impressive numbers, look super bullish for ETH long term given the supply of ETH is not growing as before

Pudgy Penguins to Launch Webkinz-like Virtual World in 2024 Pudgy World, an interactive digital world available to Pudgy Penguin NFT holders, will become available in alpha mode sometime next year, according to the company’s CEO.

This Bitcoin Rally Feels Different. FOMO and YOLO Seem to Be Back BTC just touched $45,000 days after topping $40,000 for the first time since early last year – and crypto-skeptics are taking another look.

Here’s a meme to make your week,

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research