Return of Liquidity Part 1: Repo Moves and Steady Flows

Moving onto the second part of the Stormrake 2026 thesis: liquidity. It is returning, and doing so through a number of avenues. We will break down the liquidity sources over the next two days.

Late last year it was officially announced that quantitative tightening had ended on December 1st. Quantitative tightening, or QT, is the process by which central banks reduce the size of their balance sheets, usually by allowing bonds to mature without reinvestment or by actively selling assets. The primary aim is to reassert control over inflation by tightening financial conditions. As we know, Bitcoin performs best in liquidity-friendly market environments. With QT now complete and quantitative easing edging closer, this shift lays the foundation for a bullish setup and supports our 2026 thesis.

Although we are not officially in a period of quantitative easing, liquidity is returning through tools like the repo (repurchase agreement) market. In a repo transaction, institutions post securities such as US Treasuries as collateral in exchange for short-term cash. This gives them immediate access to liquidity without selling long-term assets. As the Fed steps back from reverse repo operations and excess reserves begin to flow out, capital is starting to re-enter the system. This flow is subtle but significant.

It is also a signal. Spikes in repo usage often reflect stress in the banking system, as institutions scramble for short-term liquidity. This can indicate cracks forming beneath the surface, similar to what we saw with the collapse of Silicon Valley Bank. In the short term, this may trigger market volatility, but it is almost always followed by intervention. When pressure builds in the system, policymakers respond the only way they know how, with more liquidity, not less.

We can see this in the chart above. After months of near-zero usage, the Fed’s overnight repo facility suddenly surged in late 2025, hitting nearly $50 billion before fading back to zero. This sharp spike shows how quickly liquidity tools can be deployed when stress emerges. While it may not be labelled as QE, these short-term liquidity injections help stabilise markets and restore confidence. However, they are often a response to underlying fragility in the system, and in the short term, that stress can spill over into asset prices. For Bitcoin, this tends to show up as downside volatility and sharp pullbacks, especially during periods of funding stress or broader risk-off sentiment. But historically, these pullbacks are often precursors to strong reversals, as liquidity injections take hold and capital begins to rotate back into high-beta assets. The message is clear: the tools are available, and the Fed is prepared to use them when needed. This is the exact environment in which Bitcoin tends to outperform traditional assets.

For Bitcoin, this matters more than most realise. Historically, Bitcoin has shown strong correlations with global liquidity cycles. When liquidity expands, capital seeks risk, and Bitcoin often outperforms as a high-beta, supply-constrained asset. Liquidity flows are usually the early signal before broader market participation follows. It creates the right conditions for momentum to build. With liquidity steadily returning, Bitcoin is positioned to benefit from both a macro and structural perspective.

Tomorrow we break down yield curve interventions and regulatory nudges, two more key pillars of the liquidity return.

Read the full Rake Review and Stormrake 2026 thesis here:

Stormrake Spotlight: Pax Gold (PAXG) ($4,454)

PAXG has kicked off its next leg higher, setting in a higher low and now climbing over 1.5% in the last 24 hours. Bulls are in full control and are now targeting a new higher high, which would take price above $4,580.

BTC/USD Key Levels and Price Action:

Bitcoin has started the year well, with five consecutive green days to kick off 2026 and a clean move above the top of the range that capped price action through the back end of last year. This breakout needs to hold to confirm it is genuine and not another fake-out like we saw in December.

If it does hold, $100k is next. If it fails, we are likely heading back into the consolidation zone, with more chop and indecision to follow.

BTC Total ETF Flows for 5 Jan: (data not available at the time of writing)

*All prices are denominated in USD unless stated otherwise*

Written by Alexandar Artis

Create a brokerage account today

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

Disclaimer

All statements made in this newsletter are made in good faith and we believe they are accurate and reliable. Stormrake does not give any warranty as to the accuracy, reliability or completeness of information that is contained here, except insofar as any liability under statute cannot be excluded. Stormrake, its directors, employees and their representatives do not accept any liability for any error or omission in this newsletter or for any resulting loss or damage suffered by the recipient or any other person. Unless otherwise specified, copyright of information provided in this newsletter is owned by Stormrake. You may not alter or modify this information in any way, including the removal of this copyright notice.