Here’s what you’ll find in today’s edition:

• Felix gets into the nitty gritty of how the Fed is thinking about its reserves. 

• A look at the new SEC-registered, yield-bearing stablecoin on the block.

• The post-election optimism for crypto industry regulation is alive and well.

QT, exit stage left

January’s FOMC meeting minutes were released this week, providing plenty of fodder for monetary plumbing nerds to piece together what the Fed thinks about bank reserves and its ongoing campaign of quantitative tightening (QT).

As seen in the chart below, the QT campaign has been fraught with nuance and idiosyncratic offsetting. As QT occurred, the vast majority of it has been offset by the reverse repo facility (RRP) balance as seen by the white line below. 

Further, this has been hiccuped by the debt ceiling debacle of 2023 and the SVB banking crisis that led to the bank term funding program’s creation. 

All that said, we’re getting close to the end goal of QT in terms of the bank reserve levels the Fed is targeting. There are a lot of ways to measure this, but a simple shorthand is that the Fed has been targeting an ideal reserve level of $3 trillion that includes both bank reserves and the RRP. Currently, that nets us at $3.27 trillion. 

Given this context, there’s been a lot of talk about when the Fed might end QT altogether. And with the release of this week’s FOMC meeting minutes, we received our first hint:

Now, there’s a lot to unpack here as it contains a lot of nuances. Let’s run through them:

1. The Fed is re-thinking the duration of the bonds it holds. Ideally, it wants to run back to a level of duration that was pre-2008 and pre-QE. That is what they meant by saying “appropriate to structure purchases in a way that moved the maturity composition of the SOMA portfolio closer to that of the outstanding stock of Treasury debt...”

As of right now, that SOMA portfolio is composed of 5% in T-bills. However, treasury issuance is at 22.4%.

2. The Fed is concerned about the implications of the debt ceiling and the ensuing treasury general account (TGA) drawdown, as well as the following TGA rebuild once the debt ceiling is resolved. Simply put, for the TGA to be rebuilt back to the level it was before the debt ceiling, Treasury needs to issue a ton of T-bills. In 2023 it was able to do this easily because the RRP was filled to the brim and acted as a dampener for it. Now, sitting at $73 million, there’s no buffer. As such, the following statement was included in the minutes: “Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet run-off until resolution of this event…”

3. Although not a pressing concern, the Fed is getting closer and closer to reserve levels where “liquidity hiccups” tend to happen. The last time this occurred was September 2019 when reserves were too scarce and caused a major repo spike, stopping QT in its tracks. However, looking at the current reserve demand elasticity dashboard below (one of the best metrics for gauging risk of a repo blowup), as long as we are near that zero level there are no short-term concerns. That said, the Fed is aware that time is ticking and it does not want a repeat of September 2019 — hence its mention that “several participants also expressed support for the Desk’s future considerations of possible ways to improve the efficacy of the SRF…” The SRF, or standing repo facility, is a new permanent tool the Fed has in place to act as a shock absorber during events such as in September 2019. By mentioning its aim to improve efficacy, we can surmise that the Fed is focused on ensuring all the correct tools are in place to continue gradual balance sheet run-off.

For a relatively short amount of text, we sure were able to glean a lot as to how the Fed is thinking about its balance sheet and bank reserves in the coming months.

— Felix Jauvin

With four weeks until DAS NYC, the institutional shift into crypto is accelerating. Fund managers are positioning. How are they thinking about ETFs, tokenization, and macro risk in this new market cycle?

At DAS NYC, you’ll hear directly from the firms building their strategies around this:

• Franklin Templeton on tokenization and the next phase of asset management.

• Morgan Stanley Investment Management on how institutions are positioning in emerging markets.

• Galaxy Digital on the investment landscape and how smart money is allocating.

Less than 20 VIP tickets left. Groups of 4-9 still save 15%.

DAS NYC is where the real conversations happen. If your team is in the game, this is where they need to be.

📅 March 18-20 | NYC

This is the amount The Conference Board’s leading economic indicator index fell in January. The decline, which analysts had not anticipated, comes after the index notched a 0.1% gain in December. 

Pessimistic consumer sentiment and declines in manufacturing drove the dip, The Conference Board said Thursday.

There’s a new stablecoin on the block. 

Figure Markets is calling its new offering the first SEC-registered public security USD stablecoin native to a blockchain.

Called YLDS, it pays an interest rate of secured overnight financing rate (SOFR) minus 0.50%. Users can transfer the securities peer-to-peer via the Provenance blockchain using Figure Markets' self-custody wallets.

It was roughly a year ago that I caught up with Figure CEO Mike Cagney at Blockworks’ Digital Asset Summit in London. He told me then — following a $60 million raise — that his company was working toward having a registered security alternative to stablecoins that would pay a yield. There was this filing from October 2023.

So here we are. 

The launch comes about a month after stablecoin issuer Circle acquired Hashnote, a company that created the largest tokenized money market fund.

Circle CEO Jeremy Allaire noted the demand for market participants using yield-bearing collateral, while also being able to easily convert it to tokenized cash (referring to USDC).

Stablecoins have been called crypto’s killer app and a payments space disruptor.

Andrew O’Neill, digital assets managing director at S&P Global Ratings, noted in a recent report that stablecoins could lead to more TradFi-DeFi overlap — like in the case of cross-border payments, the tokenization of real-world assets (RWA) or digital bonds issuance.

Stablecoins’ market capitalization stands at nearly $222 billion; there are roughly 149 million stablecoin holders, according to rwa.xyz data. Onchain RWAs amount to about $17.5 billion.  

“The lack of a consensus about the tools that should be used to bring money natively onchain is among the main factors that hinder the development of digital bonds and RWA tokenization.”

We’re keeping an eye out for stablecoin legislation in the US, as S&P Global analysts expect regulation to bolster the category’s adoption. 

To that point, they forecast a number of users to “transition progressively” from unregulated to regulated stablecoins. So perhaps Figure is on to something.

— Ben Strack

With a new administration in the White House, 2025 is shaping up to be a big year for institutional interest in crypto. 

“It’s here to stay,” Roger Bayston, head of digital assets at Franklin Templeton, said of digital assets during a Blockworks Roundtable discussion on Thursday. 

Crypto, which has now surpassed the high-yield bond market, will only start to act as a more robust and mature capital market over time, Bayston added.  

His enthusiasm is something Liat Shetret, director of policy at Elliptic, has observed in other institutional players as well. 

“In the past, we've talked a lot about how the global finance system is kind of made up of an assortment of band aids, like ‘stop the bleeding here,’ and we have almost this opportunity to rebuild with vision,” she added, noting that crypto infrastructure has the potential to disrupt capital markets. 

The excitement comes as the industry continues to clock small “wins” from the Trump administration and federal agencies. 

The SEC has started to back off Gensler-era lawsuits against Binance and Coinbase, and while neither has been dismissed, it’s a level of industry-agency cooperation that we’ve never seen before. 

Binance, in response to the SEC’s new leadership, announced yesterday that it would be restoring its fiat rails. 

“In the past two weeks, we've seen very strong signals, some tangible evidence of the sea change that's ongoing,” Christopher Blodgett, president of Binance.US, said. 

We’re not quite through the first quarter yet, but we’ll be watching to see if this optimism continues throughout the year, and if federal regulations do start to shift in favor of the industry.

— Casey Wagner

• Bitcoin eclipsed $98,000 early Thursday. Its price at 2 pm ET: $98,370. Ether was trading around $2,740 at that time — up nearly 1% from yesterday.

• The SEC replaced its Crypto Assets and Cyber division with a so-called Cyber and Emerging Technologies Unit (CETU). Comprising roughly 30 fraud specialists and attorneys, CETU seeks to complement the work of the Hester Peirce-led crypto task force by combatting securities transaction-related misconduct.

• Franklin Templeton has launched a US ETF that holds both BTC and ETH. Hashdex launched a similar product — its Nasdaq Crypto Index ETF — last week. The latter fund now appears to be seeking clearance to hold other crypto assets as well.