Matrixport: $1 billion idle cash may flow into risk assets every day in the next two years

Matrixport released a latest report stating that there are many different ways to succeed in cryptocurrency investment, one of which is to accurately predict the macroeconomic situation and position oneself before major changes occur. The report predicts that inflation will continue to decline over the next two years and may fall to about 2%. Last night, the market received the final Consumer Price Index (CPI) report for this year, with an inflation rate of 3.1%, and the report predicts that next year's readings will continue to be below 3%. The report mentions that for several months, the market has been advocating for interest rate cuts while the Federal Reserve has remained unchanged since July 2023. This situation is similar to January 2019 when the Federal Reserve raised interest rates continuously in 2018 but then paused for seven months. During this "pause" period, Bitcoin rose by nearly 300%.

The inflation rate is 3.1% and the US interest rate (Federal Funds Rate) is at 5.25%, indicating inconsistency in monetary policy by the Federal Reserve. The report states that its view does not imply that such inconsistency would harm the economy because it would limit capital expenditure, ultimately stifling economic growth and leading to a recession. The report believes that as long as the Federal Reserve maintains a "tightening" monetary policy for an extended period of time, more depositors will receive payments which will eventually flow into risky assets. The economy has already transitioned from heavy asset-based (real estate, industrial construction, etc.) to light asset-based (remote work, conducting business through Zoom and other technology applications). Additionally, technology is considered as one of America's most important industries with a market share of 28% in US stock markets. As a whole, these companies have almost zero debt and like many investors hold significant amounts of unnecessary cash.

The analysis in the report suggests considering that since COVID-19 hit, the assets of US money market funds have doubled from $3 trillion to $6.1 trillion, with an annual interest payment of $320 billion. This is equivalent to an annual interest payment of $370 billion - or $1 billion per day. The funds that can easily enter risky assets (stocks and cryptocurrencies) and principal ($61 billion in money market funds) can also be used to drive up asset prices. Most of the interest payments are borne by the US government as they are the largest borrower needing to pay debt rates. While the government's debt burden is increasing, it seems that the private sector is benefiting as they have $1 billion in idle cash every day, which can drive up asset prices.