Bank Reserve Drop Doesn't Prove Bitcoin Liquidity Squeeze
The recent drop in bank reserves by $88 billion has led some to claim it's evidence of a Bitcoin liquidity squeeze. However, the situation is more complex than that.
The Federal Reserve released data on October 1 showing bank reserves fell from $2.969922 trillion on September 23 to $2.881686 trillion on September 30. But this decline in Wednesday reserve balances doesn't necessarily mean there's a liquidity problem for Bitcoin.
For one, the weekly average of reserve balances actually rose by $17.897 billion over the same period. This difference is due to the different time windows used to calculate reserves: Wednesday balances versus weekly averages.
The Treasury General Account, which represents the government's account at the Fed, also shows a mixed picture. Its Wednesday balance rose by $36.729 billion, while its weekly average fell by $28.410 billion.