Recently, the Federal Reserve's action of injecting $16 billion into the banking system overnight has caught attention. This is the second-largest liquidity injection since the pandemic began. It seems a bit unusual, and there is definitely a story behind it.

First, let's explain what an overnight repurchase agreement (repo) is. In simple terms, the Federal Reserve temporarily takes on the role of a lender, buying assets like government bonds from banks in exchange for cash, with the banks repurchasing them the next day. Essentially, when banks' liquidity is tight, the Fed acts as a 24-hour lender. The $16 billion nominally flows into the traditional financial system, but there's a problem—capital always seeks higher returns. Once liquidity is released, it's hard to keep it locked in low-yield traditional assets. The crypto market is especially sensitive to liquidity changes and has always responded quickly.

From a market observation perspective, the timing of this operation is worth pondering. If the banking system were truly under no pressure, the Fed wouldn't need to deploy such a large amount of funds for late-night support. Liquidity tends to tighten at the end of the year, and this scale of injection indicates that some institutions are indeed experiencing increased funding pressure. Looking back to 2020, the Fed's sustained quantitative easing led to a flood of liquidity, ultimately pushing up the prices of various high-yield assets, including cryptocurrencies. Although we haven't yet returned to those extreme levels, the trend is worth watching. Does this liquidity injection signal a shift in policy direction, or is it just a routine end-of-year operation? Market opinions vary. But one thing is certain: any liquidity movement will be quickly reflected in the crypto market.