What is Reverse Repo — and why is it a warning sign?
We often hear about QE — when central banks flood markets with money.
But there’s a reverse move: Reverse Repo.
That’s when the central bank drains excess liquidity by selling securities with a promise to buy them back later.
In short: banks temporarily lend money to the central bank, receiving assets as collateral.
Why? To cool down an overheated system.
Sounds harmless — but when Reverse Repo volumes hit records, it’s a red flag.
The money exists, but it’s not circulating.
Banks aren’t lending. Markets stall. Investors sit on cash instead of taking risks.
When markets are too “liquid,” they get dried up.
But dry too fast — and you get recession.
Crypto doesn’t participate in Reverse Repo.
But it feels the consequences — through risk-off sentiment and liquidity outflows from exchanges.
