Transcription
No one is talking about it yet, and yet it's an element that needs to be looked at, which is not simple to grasp, as usual. So, as always, this won't be a super simple video, but if you want to be part of the 10% who win, you have to do what 90% of people don't do. And what they don't do is be curious, learn how the financial system works to understand everything that's going to happen in terms of cryptocurrency, stocks, listed companies, and so on and so forth.
Today, we're going to look at what are called money market funds. It's something quite enormous, weighing in at around 7.4 trillion dollars at the moment. So, you heard right, 7.4 trillion dollars, 7,400 billion. And we need to look at what's happening with these funds at a time when we have what's called an asset rotation, as we are experiencing now with an environment that is becoming "risk-on," meaning an environment where appetite for risk, appetite for the most volatile assets, Bitcoin and altcoins, is starting to be felt in the global economy.
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Money market funds, in short, are money investment funds that are above all hyper-secure and offer low returns. Naturally, they are hyper-secure, so the returns aren't amazing. We won't go into the details of how they are composed. Just remember that the vast majority of what makes up Money Market Funds are precisely US Treasury bonds. These money market funds are hyper-liquid, as we call them. This means that those who put their money in them can withdraw it immediately and so on. And this leads to a first conclusion, which is that Money Market Funds are primarily made up of Treasury bonds with very short maturity dates.
Maturity date. If you watch my videos, you know what that is for newcomers. It's the duration during which the US government will borrow your money with the promise of repaying you. There are bonds for 1 year, 2 years, 3 years, 10 years, 20 years, 30 years, but there are also bonds for very short durations called T-bills, notably for 1 month and 3 months for the most well-known. And money market funds own a lot of them.
The crucial point is to understand the mechanism of when money market funds start to be truly fed in terms of cash and capital. And from what point will they gently empty themselves to go in search of higher returns? And like the crypto market, like the stock market, bull runs and bear markets, everything is linked to monetary policies and the movements of Treasury bonds. It's a concept that isn't very popular because it's difficult to understand the relationships between yield curves on bonds, which can indicate recessions, etc. So I will do my best to simplify it as much as possible so that you understand.
In short, what happens is that there are two periods of time during which, one, we have a Fed, to take the American example, that is very dovish, as we call it, and that is easing its monetary policy. Lowering interest rates, you know that. End of QT, start of QE, you know that too. It's very popular on YouTube for the past few weeks, a few months. And this produces a whole host of stimuli in the economy. And the first stimulus is money creation. This stimulus will not only involve money creation but also other side effects, which will be that Treasury bonds will decrease in terms of the yield offered to investors.
And here's a first very useful point: understand that the Treasury bonds that will be most affected by the rise or fall of interest rates are short-term bonds. Long-term bonds, 10, 20, 30 years, are very little affected. However, very short-term bonds are hyper affected. What you can see right here are precisely the money market funds here in purple, which currently total 7.4 trillion dollars. We are on a quarterly scale, there's no choice with this type of asset. And you have the colored lines here. These are Treasury bonds, with first, in blue, 1-month maturity Treasury bonds, in yellow, 3-month, in purple, 1-year, in green, 3-year. And what you can see is that very short-maturity bonds move much faster and especially much more strongly than long-term bonds because they are very impacted by short-term monetary policies.
If we take the bonds one by one so you can see the very short-term reaction, it's explained here. We had a rate cut here in September 2024. Remember, it caused the yields on one-month bonds to drop from 5.26% to 4.21%. We just cut rates a second time in September 2025, and we are following the same movement as we did in September 2024. Except that the big difference is that here we had a single rate cut of 0.25 points, whereas here we are still pricing in two rate cuts by the end of the year with a next rate cut that should be in 7 weeks, and so we can anticipate that yields will continue to fall.
If we take the 3-month bond, we can see that it reacts less strongly, but it still reacts very strongly. And if we take the 1-year bond, the 3-year bond, and the 10-year bond, we can see that they react much less because they are on a much longer maturity. And if we take a 10-year maturity, well, in 10 years, we are supposed to experience two economic cycles in terms of debt cycles, in terms of liquidity cycles, with sometimes rates going up, sometimes rates going down, and therefore, the longer the maturity, the less the bonds will be impacted, or at least their yields.
And so, when we understand the mechanism with rates, when we understand the mechanism that T-bills are strongly impacted and that the yields they offer will largely decrease, here, in 1 year, we are already seeing a 27% drop in yield. We have to ask ourselves what will become of all the funds placed precisely in money market funds. Because you have to realize one thing: when we do the ratio, a drop of 1.5% to 2% in the Fed's interest rates causes the income of money market funds to plunge by about 100 to 140 billion per year.
So, a question arises: these funds are not just there to offer security to the general public; they are there to generate returns, of course. And so, when returns fall, they have to find other alternatives to at least catch up with the gap. And that's why, in this large curve of assets in the market, in money market funds, we have periods during which they naturally strengthen their capital, and periods during which capital falls sharply, like here, like here a little bit here. And since 2022, what's happening is that these money market funds are rising, rising, rising, rising, rising. They are becoming much more capitalized. We've been tracking since the beginning of the bull run, they've gone from 5 trillion to 7.5 trillion, an increase of over 55% in capital.
So, we said it, we made the postulate: they are composed mainly of hyper-secure assets that can offer very good returns, T-bills, government bonds, with a maturity of less than 1 year. We can see a fairly strong correlation here with 1-month and 3-month bonds, which have an age that, on TradingView, is not very, very old. We see a mechanism that will be the same with Bitcoin, which I will show you next: when yields on these Treasury bonds rise, it becomes quite interesting to invest in them. It becomes quite interesting to invest in them. And what happens is that we see a lag when yields on Treasury bonds rise. Then the movement takes place in money market funds, which come to buy all these Treasury bonds and, of course, see their liquidity increase, naturally.
This is a first principle to understand. It's not because the curve is rising here that they are buying bonds at that moment; they already bought them during the rise and they are growing little by little with a slight delay. Now, what's interesting isn't so much that, but also to note that when the yields offered by bonds fall, money market funds, or at least those who manage them, have no choice but to also select assets that will allow them to catch up. So they don't empty themselves completely, of course, because going into more speculative assets means risk. They have to maintain their risk-averse fund status, and that's why we see them emptying a part of their substance to go into other riskier, more speculative assets to make up for the loss of return caused by falling yields.
And we see this mechanism happening. Right here, we have an example. The drop in yields starts to happen strongly, a drop in capital in money market funds. Why? Because we're going to look for returns elsewhere. Here too, we have a big drop in yields. We're looking for returns elsewhere. We're withdrawing capital. Here, there was a big withdrawal, about 3.9 trillion down to 2.8 trillion. That was significant. And what's happening is that now we're starting to see this drop in yields across all types of bonds, with those at the forefront and taking the biggest hit, of course, being T-bills, those at 1 month, those at 3 months, and those with a maturity of less than 1 year.
And what's super interesting is that we observe that even on a quarterly scale, there's a lag between what bonds offer in terms of yields and the movement on the money market fund curve. A lag of about a year. When we had this drop in yields, there was a one-year lag before we saw money leaving money market funds. And that's logical. Why a year? Because, as we said, T-bills have a maximum maturity of 1 year. And so, it would have been abnormal to see a reaction that is 2, 3, 4 years later. This confirms that they are indeed composed mainly of very short-term maturing bonds. You can also verify this online. There are many sites, many sites that confirm what I'm telling you. You can check everything.
And so, the detailed point is to ask ourselves what can happen from now on. Because obviously, we see that the fund is not emptying entirely. But what would be super interesting is to say, very well, if typically we have a drop in money market funds from 7.5 trillion, why not to 5.8 trillion, well, that's almost 2 trillion that will feed the market. And we, as big crypto speculators, would love to see 2 trillion arrive. All sources of capital will be welcome. There's M2, there's Global Liquidity, there's the asset rotation of all investors who were in gold, who were in the S&P 500, in the Nasdaq. Why not also have an asset rotation from these large funds capitalized at trillions, and we are right on time. We are right on time. The drop in rates happened from October, September 2024. We are in October 2025, a year later. It's time for an asset rotation in money market funds as well.
And so, I found it interesting to talk to you about it because it's a reservoir of capital that no one is talking about at the moment. God knows that in a week or two, many YouTubers will start talking about it, but I wanted to draw your attention to this because you really need to look at all these details.
The last point I'd like to show you and explain is the real correlation between what Treasury bonds offer, Bitcoin's movements, and the dollar's movements. Because what we see everywhere, and which is also true, is that the dollar opposes Bitcoin. Naturally, Bitcoin is created against the dollar. So, if the dollar gains strength and Bitcoin doesn't gain strength, then Bitcoin will decrease in price. Conversely, if Bitcoin doesn't move, so to speak, and the dollar loses strength, then Bitcoin will appreciate. And if we have a double mechanism of Bitcoin appreciating at the same time as a dollar depreciating, then Bitcoin will take off and gain value extremely quickly. That's a basic principle.
And so, what we don't like is when the dollar gains value. Generally, when it gains value, everyone starts to panic and say, "Okay, the dollar is rebounding, which means Bitcoin and risk assets will decrease in value." And the reality is that not necessarily. Not necessarily. And I'd like to point out different periods in history during which Bitcoin appreciated at the same time as the dollar. And the most recent historical point we experienced was right here between July 2024 and October, November, December 2024. We had a dollar that went from 101 points to 108 points, and a Bitcoin that went, if we take the closing price here, from $62,000 to $108,000. We had a rally of both assets at the same time. It was the same thing here for 6 months, it was the same thing here for 6 months, it was the same thing throughout the 2021 bull run, from October 2020 to December 2021. We had a rally of both assets. It also happened here during this 6-month period. It also happened here, and it has happened several times in history.
So, what's most interesting to understand are several things. The dollar and its appreciation versus its depreciation depend on more mechanisms than just interest rates. The Fed's interest rates will greatly influence the dollar's value, that's for sure, but also other mechanisms that will affect its value. Beyond that, we can have a speculative environment in which the dollar rises at the same time as Bitcoin, or a dollar that falls at the same time as Bitcoin. That's also possible. It has happened, and it has happened. You don't have to look very far; during the bear market, the bear market from July to December 2022, we had a bearish rally in both Bitcoin and the dollar. Both can coexist and survive at the same time.
However, what's very interesting is that if we look at the dollar and only consider the biggest asset that opposes Bitcoin, which is a safe-haven asset compared to a currency, it's Treasury bonds. And what we can see is that the correlation, on the other hand, becomes immediate when there's a bottom in Treasury bonds. Regardless of the maturity, T-bills, not bonds, it doesn't matter. When there's a bottom and a rally, we have a bear market in Bitcoin. When there's a top and a bearish rally in bonds, we have a bullish rally in Bitcoin and risk assets. You can see it; it's not very complicated. We have a bottom here. We retrace a little bit on Bitcoin, certainly, but we establish a top structure that leads to a bear market while there's a bond rally. We have a top here in bonds. We re-enter a bull run in 2023 on Bitcoin with, for now, a continuation of this bull run and a drop in bonds. Before that, it was the same. We have a top here in the bond market. What happens? We have a drop in bond yields. On the other hand, a huge bull run until the bottom is reached in yields. Here it's the same, and this is typical of a market that is becoming institutional because institutions follow these monetary flows. They follow these flows in monetary policies. It becomes risky. We put our money into what is most secure, which is Treasury bonds. It becomes much less risky. We take our money out of Treasury bonds and put it into cryptocurrency.
And so, the first argument to appreciate is this one. Second argument: what are the chances of seeing Treasury bonds, or at least yields, continue to fall without a financial crisis, because generally these yields fall when the Fed's rates fall? And there, remember, we saw another principle, and this is where economics becomes hyper complicated. We saw another principle, which is precisely the concepts of soft landing and hard landing. The Fed intervening either early enough to prevent a liquidity crisis, a unemployment crisis, a corporate crisis, a credit crisis, whatever. And so, we are in a soft landing context, meaning we have a rate cut, we have QE resuming without a bear market like in 2022. Or, we have a kind of hard landing where the Fed intervenes too late, as in the 2000s, as in the 2008s, where the bubble had already started to burst when the Fed arrived and aggressively cut rates.
Currently, we are in a soft landing context and continue to be, and so we can appreciate with the data we have that with the rate cut that should happen this week, the one that will happen in December, perhaps others because we observe a lack of liquidity in the banking system, we can continue to have these small curves depreciating with a rally in risk assets that will continue until there is a monetary policy that reverses or a crisis that restarts.
I hope the video pleased you. If so, subscribe, give it a like or a comment, and I'll see you on Wednesday for the next video. It's Trid, have a good day. Bye bye.