Is Liquidity Drying Up? What It Means For Bitcoin
The repo market just sent a signal
What is a “repo”?
This week saw an unexpected jump in use of the Fed’s Standing Repo Facility (“SRF”) as well as heightened SOFR rates. If that sounds like Latin to you, don’t worry- here’s what it means:
A ‘repo’ transaction is just a very short-term (usually overnight) loan between two parties. That loan is secured by collateral, usually in the form of Mortgage Backed Securities (“MBS”) or US Treasuries.
Example:
Nakamoto Bank is tight for cash to fund operations and pay an upcoming tax bill. It can sell assets, or it can pledge those assets for a short-term cash injection, so Nakamoto Bank goes to the Fed’s SRF operation and pledges $10 billion of US Treasuries. Immediately, the Fed provides $10 billion in dollars.
The next day, Nakamoto Bank goes back to the Fed and pays back the $10 billion, plus a small amount of interest (that interest rate will become important later).
That’s it, now you understand a “repo”
Fed’s Repo Facility Sees Massive Usage
This “Standing Repo Facility” is supposed to be a last resort, and generally over the past five years, it’s seen very little usage. Of course, from Q2-Q4 of 2025 it started to heat up, due to a building liquidity shortage and this is why the Fed quickly announced they’d start printing again (Reserve Management Purchases, or “RMP”) in order to address the cash shortage.
Daily usage of the Fed’s Standing Repo Facility – total securities pledged/total liquidity provided.
Now, it’s common to see liquidity crunches on tax deadline or at the end of the month/quarter, as banks rush to shore up their books. What’s not normal is to see the third highest usage since 2020, especially given the fact that neither of those scenarios are present and given the RMP’s (QE-like money printing) being conducted by the Fed, which have served to inject freshly printed dollars into the financial system.