Fed Bank Reserves Near ‘Danger Zone,’ Analyst Implies BTC Upside

Shrinking U.S. bank reserves could mark a liquidity squeeze that historically signals bitcoin rallies, according to analyst Adam Livingston.

Bank reserves at the Federal Reserve dropped to approximately $2.93 trillion last week, according to The Kobeissi Letter. Author Adam Livingston interprets this decline as a signal that could trigger significant upside movement for bitcoin in the coming weeks.

Livingston argues that reserve levels are approaching a danger threshold. He claims the banking system is “within five weeks of the danger zone,” suggesting liquidity conditions are tightening rapidly. Reserve balance represents the banking system’s deposits at the central bank.

This story is an excerpt from the Unchained Daily newsletter.

Livingston’s analysis connects three simultaneous forces draining cash from the system. The U.S. Treasury has been replenishing its cash balance at the Fed by selling more bills. Meanwhile, the Federal Reserve continues shrinking its portfolio through quantitative tightening. Other Fed liabilities, like currency in circulation, also expand over time.

According to Livingston, when cash scarcity emerges and funding markets become volatile, officials typically slow balance sheet runoff. He argues these liquidity inflection points have historically coincided with stronger bitcoin performance.