US money market funds currently have over $ 7 trillion, which some analysts think could soon be rotated to various asset classes, including cryptocurrencies, which potentially burns the next leg higher in Bitcoin and the alternative cryptocurrencies (Altcoins).
A money market fund is a type of mutual fund that invests in high -quality debt instruments, such as treasury forms, certificates and commercial paper.
The total stock market fund assets increased by $ 52.37 billion for $ 7.26 trillion for the week ending September 3, according to the Investment Company Institute (ICI). Assets with retail men’s market funds rose by $ 18.90 billion to $ 2.96 trillion, and institutional funds rose by $ 33.47 billion to $ 4.29 trillion. ICI reports the Money Market Funds assets to Federal Reserve every week.
Money market funds have been swollen in recent years and originally withdrawn money due to their garden appeal during the coronavirus-induced crisis in early 2020 and later during the Fed’s SATS hike cycle that pushed the yields up and attracted investors.
Inflow remained robust late last year, even when Fed reduced the rates from 5.25% to 4.25%. However, further cuts in the rates could get investors to move a significant part of their cash pile to other assets, including Cryptocurrencies, according to David Duong, institutional research leader at Coinbase.
“There are over 7 trillion dollars in money market funds and all this is retail money. As these efforts start coming in, all of these retail cash streams really come into other asset classes such as shares, Crypto and others,” Duong told Coindesk in an interview.
The US Central Bank is expected to lower its target rate by at least 25 basic points when it meets next week, according to CME’s FedWatch tool. Some market participants expect a reduction of 50 bps.
Traditional market observers are just as psychic over the cash market’s cash pile. In an interview with Boutique Family Office & Private Wealth Management, Cresset’s main investment strategist, Jack Ablin, declared that efforts could redirect money market flows to shares and cryptocurrencies.
“There are slightly more than $ 7 trillion in money market funds that give about 4.5%. If this dividend is turned down to 4.25%or 4%, it could cause more investors to redirect cash to shares,” Ablin explained.
Rotation is related to the wider economic environment
While the cash market’s cash pile is expected to flow to more risky assets soon, this rotation is not guaranteed.
The extent to which investors redistribute funds depends on the broader economic environment. So if there is a result of action on the basis of financial slowdowns or increased financial uncertainty, many investors may prefer to continue to keep money market funds.
These funds offer relatively stable returns and immediate cash access, making them an attractive opportunity when confidence in growth and financial markets subsides. So, despite lower yields from rate cuts, investors may remain cautious and maintain significant balances in money market funds.
According to Pseudonymous Observer Endgame -Macro, it is actually a sign of an impending financial pain.
“We only see builds like this when investors want dividends but do not want to take on duration or equity risk. It happened after the dot -com bust, again after GFC, and by 2020-21, when the rates were floated and money was waiting for the sidelines,” Endgame Macro said at X.
The observer added that when the rates fall, the money is first assigned to the Treasury and then to more risky assets.
Duration risk refers to the sensitivity of a fixed income investment (Bond’s) Price for changes in interest. In connection with money market funds investing in short -term debt instruments with maturity, there are typically less than one year relatively low compared to bonds in the longer term.
Per Endgame -Macro depends on the rotation of the size of the impending speed cut.
“The bigger question now is not only whether the fat cuts are, it is so. A cautious 25 BPS drag lets money funds blow down gradually, while a 50 BPS cutting could speed up the shift, pushing cash into Treasury first and then risking assets when the dividend benefit disappears.
