The Federal Reserve injects $13.5 billion overnight! Bitcoin gives early warning of a US dollar liquidity crisis

The Federal Reserve’s overnight repo operations have reached $13.5 billion, which is a significant abnormal signal for professional traders tracking dollar liquidity. This sudden spike indicates a sharp rise in short-term dollar demand within the banking system, possibly hinting at a tightening in funding markets or waning institutional confidence. As a liquidity-sensitive asset, Bitcoin was the first to feel this change over the weekend, with price volatility ensuing. Bitcoin is no longer independent from the U.S. dollar system; instead, it is deeply embedded in the global liquidity cycle.

Two Possible Explanations Behind the $13.5 Billion Repo Surge

(Source: FRED)

The Federal Reserve’s overnight repo tool is essentially the financial system’s “emergency faucet.” When banks, dealers, or investment funds need dollars temporarily, they can pledge their U.S. Treasuries to the Fed in exchange for cash, reversing the transaction the next day. This type of transaction is extremely safe, as Treasuries are considered the world’s safest collateral with almost zero default risk. As a result, the repo market acts as the lubricant for the entire dollar system.

Why did the $13.5 billion repo on December 1 attract attention? Because it’s far above recent averages. From September to November 2025, the Fed’s overnight repo usage mostly remained at low levels, but suddenly surged at the start of December—a non-routine change that often signals internal frictions in the system. The question is: is this friction a short-term technical issue or a deeper structural pressure?

The first possibility is technical adjustment. The beginning of the month is usually a busy period for financial institutions to settle and rebalance their books, and mass settlements can cause a short-term dollar shortage. In addition, as year-end approaches, institutions may adjust their holdings to optimize their financial statements, further increasing dollar demand. If this is the case, repo usage should return to normal within a few days and will not have a lasting impact on the market.

The second possibility is more concerning: a tightening funding market. When confidence in private lending markets (such as interbank lending) falters, institutions turn to the Fed as the “lender of last resort” for safety. This behavior has appeared in the early stages of past financial crises—before Lehman Brothers collapsed in 2008, the repo market showed similar abnormal volatility. While we are far from crisis levels today, the rising SOFR rate and increased use of the Standing Repo Facility (SRF) both suggest growing tension in the funding markets.

Two Scenarios Interpreting the Repo Surge

Optimistic scenario: Technical adjustment at the start of the month, normalizes within days, just routine fluctuation

Warning scenario: Precursor to funding market tightening, private lending decreases, institutions turn to the central bank for help

Current data is insufficient to confirm which scenario is unfolding, but the persistence of Fed operations will provide the answer. If repo usage remains elevated through mid-December, alongside persistently high SOFR rates, the likelihood of the warning scenario rises significantly.

How Dollar Liquidity Dominates Bitcoin’s Fate

(Source: Coinglass)

Bitcoin is often depicted as “digital gold challenging dollar hegemony,” but market reality tells a different story. Since the launch of spot ETFs and the rise of institutional trading platforms, Bitcoin has become fully integrated into the traditional financial system’s liquidity cycle. Long-term data from 2013 to 2025 shows a striking synchronization between Bitcoin prices and global M2 money supply, with a correlation coefficient above 0.8—proving that liquidity is the core driver of Bitcoin prices.

When dollar liquidity is abundant, the entire financial system enters “risk-on” mode. Lower financing costs make leveraged trades more attractive, and institutions are willing to allocate more capital to high-volatility assets. As a high-beta asset, Bitcoin performs exceptionally well in such environments, soaking up speculative capital seeking high returns. Market maker spreads narrow and trading depth increases, further lowering the costs for large capital flows and creating a positive feedback loop.

Conversely, when dollar liquidity tightens, the rules of the game change completely. Even if Bitcoin’s fundamentals (mining difficulty, network security, adoption rate, etc.) remain unchanged, prices still come under pressure. This decline is not due to any problem with Bitcoin itself, but because, when financing costs rise, traders prioritize selling the most liquid and volatile assets to release collateral. Bitcoin is often the first hit, as it offers enough liquidity for large capital to exit quickly but does not pay dividends or interest to offset holding costs.

This is the invisible link between the $13.5 billion repo operation and Bitcoin prices. The repo itself doesn’t directly buy Bitcoin, but it adjusts the overall system’s liquidity, which in turn determines institutional investors’ risk appetite. A smoothly running dollar system provides a favorable macro environment for Bitcoin’s rise, while a jammed system rapidly drains buying power from riskier assets.

Bitcoin Is No Longer the Opposite of the Dollar System

A deeper structural shift is that Bitcoin is no longer the dollar system’s opposite, but has become part of it. The launch of spot ETFs lets traditional asset managers include Bitcoin in standard portfolios, and the maturity of derivatives markets allows hedge funds to use Bitcoin for complex arbitrage and volatility trades. These institutional players use funds from the same dollar pool and are subject to the same regulatory and capital requirements.

When the Fed injects liquidity through repo operations, those dollars don’t disappear—they flow into various asset classes seeking returns. In a low-rate, abundant liquidity environment, Bitcoin acts as a magnet for those funds. Conversely, when the Fed tightens liquidity, funds are withdrawn first from high-risk assets like Bitcoin and return to safe assets such as Treasuries.

This week’s $13.5 billion operation is at a subtle midpoint: large enough to signal the system needs Fed intervention, but not yet at panic levels. It suggests the dollar system is under mild stress, with slightly declining confidence in private funding markets and a shift towards central bank safety. For Bitcoin, this is a neutral-to-positive signal: liquidity injections are better than withdrawals, but the duration and scale will determine the real impact.

If repo usage falls back in the coming weeks, it means this was just a technical fluctuation and Bitcoin will maintain its current trend. But if repo usage stays high, accompanied by persistently elevated SOFR rates, it suggests funding market tightening is intensifying and Bitcoin could face more selling pressure. This is the dollar system’s crack: it appears stable on the surface, but even subtle shifts in underlying liquidity can trigger chain reactions, with Bitcoin—as the most sensitive barometer—reflecting these changes in advance.