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This is really big. Jamie Dimon, CEO of JP Morgan, one of the most powerful men in the world, just dropped a bombshell. He said that there might be a bit of a kerfuffle in the Treasury market, which could force the Fed to step in. Now, I know Jamie Dimon isn't exactly our favorite guy, okay? I mean, it's effing Jamie Dimon, okay?
He's a mega Bitcoin hater, but the man does know markets. And hear me out. His warning may actually be the event that pumps Bitcoin to disgusting highs. Plus, dive into what this is all about and decide if we should be getting the champagne ordered up for the big party before the year ends. Now, kerfuffle, kerfuffle, is a word used by JP Morgan's big boss, Jamie Dimon, during the bank earnings calls last Friday.
He said that the fuss in the Treasury market right now will happen because of all the rules and regulations the Federal Reserve will most likely intervene, but not until they start to panic just a little bit. We've been discussing Treasuries for a while now, and we all know the Treasuries, of course, are IOUs issued by the government and are considered to be one of the safest forms of investment, especially for those issued by America, man, cuz America, yeah.
It's Uncle Sam, after all, man. America's not going to default on their debt obligations, right? We also need to understand that banks play a crucial role in this market by acting as the middleman for these markets. They buy the Treasuries straight from the government, sell them to you and me. Unnecessary middleman, but that's how it happens.
They ensure there's always enough activity to keep the market running smoothly. Now, to understand why Jamie Dimon thinks that there will be some kerfuffle in the Treasury markets, and the Fed is probably going to have to intervene sooner or later, we have to understand this little term called supplementary leverage ratio, or SLR.
Now, this is some nerdy so put your glasses on, guys. The SLR is a safety rule for banks. This was introduced after the 2008 financial crisis to prevent them from taking on too much risk. It's been around since 2014, and when global regulators under the Basel III framework set stricter standards for banks.
Now, in the USA, the Federal Reserve and other agencies adopted the SLR to ensure that big banks, like JP Morgan, stay stable even during tough times. The SLR requires banks to maintain a specific ratio between their own money, called Tier 1 capital, and all the assets that they hold. Tier 1 capital is the bank's core financial cushion, money from shareholders and profits that the bank has saved up.
On the other hand, assets include everything the bank holds, like loans, investments, and even, of Treasuries. The SLR equation is pretty simple. Tier 1 capital divided by total assets multiplied by 100. For big banks, this ratio must stay above 5%. 5% doesn't even sound like that much, but it has to stay above 5%.
The catch, even safe assets like Treasuries are counted toward the total. If a bank holds too many Treasuries, its SLR might drop too low, forcing it either to raise more capital, which is costly, or to hold fewer assets, like stopping buying Treasuries. If the big banks aren't buying Treasuries, buckle up, man, cuz holy Now, if many banks pull back, guess what happens?
The Treasury market could literally just freeze up, which central banks, like the Federal Reserve, they don't want that to happen. So, therefore, Jamie Dimon believes that if the Treasury market starts to stall, the Federal Reserve will be forced to step in to fix things, becoming the buyer of last resort.
The Fed's job, of course, is to keep the economy stable, and it has the power to adjust regulations to prevent any kinds of financial crises. We have to remember that treasuries are needed by the government. The USA has to keep selling that debt. Okay? Now, if that market F's up, then the Fed will have really no other options here.
The Fed's likely move is an SLR exemption, where they tell banks, "Look, you don't have to count the treasuries when calculating your SLR." This reduces the total assets in the SLR equation, making the ratio higher. For example, a bank has a $100 billion in tier one capital and $2 trillion in assets, including $500 billion in treasuries.
Its SLR is 5%. If treasuries are excluded, the assets drop to $1.5 trillion, and the SLR rises to 6.67%. With a higher SLR, banks have more wiggle room to hold treasuries without raising additional capital, keeping the market running smoothly. Now, the Fed they've done this before. In 2020, during the Corona beer crisis, they temporarily allowed this exemption to help banks manage a surge in treasury demand.
Now, I know what you're thinking. What the heck's all this going to mean for Bitcoin? We'll get the inside gossip on that in just a second, but before we get into that, guys, if you're trading these cryptocurrency markets, I know we're talking about big banking today, but that means big implications for the crypto markets.
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But let's just connect a few of the dots here and see why this SLR exemption is going to be a massive win for Bitcoin. You see, the Federal Reserve lets banks exclude Treasuries from the SLR. That means they can then start to hold more without stressing out about extra capital. Now, in our example, the bank's assets, at least on paper, dropped to $1.5 trillion, bumping its SLR up to 6.67%.
To get back to 5%, it can actually take on another $500 billion in assets. More Treasuries on their books means that banks keep more liquidity in the markets, man. All that liquidity, baby. Give me some of that liquidity. Oh, liquidity. Now, acting as the middleman here to ensure smooth trading, they can use those Treasuries as collateral for lending, boosting liquidity across the board.
Here's the exciting part for us gambling addicts over in crypto, a liquid Treasury market builds confidence, sparking the fabled risk-on vibes, baby. Banks can also grab riskier assets like Bitcoin ETFs from BlackRock or Fidelity or stocks like Coinbase, indirectly fueling our space. Even just more money in the system is just broadly good, okay?
Plus, when banks load up on Treasuries, it often pushes yields down, which is what everybody wants to see right now. So, the Fed might step in and buy Treasuries to stabilize prices, flooding the system with even more dollars. More dollars in circulation means an erosion in the greenback's value, which means a weaker DXY, which by the way has been falling off an effing cliff recently.
And we all know there's an inverse correlation between the price of Bitcoin and the dollar index. Dollar index down, Bitcoin usually up. Global M2 money supply, which this is going to affect, by the way, prices for Bitcoin also up. We saw in 2020 dollar strength index dropped, Bitcoin's price skyrocketed.
Bitcoin's fixed supply, 21 million coins, means a weaker dollar makes it a go-to hedge against the erosion of purchasing power, driving demand and price higher. In a risk-on market, investors chase high-reward assets like Bitcoin, just like the 2021 bull run. The question is, will this actually happen?
Well, obviously, this is just some that Jamie Dimon said. We cannot say for certain. We don't have a direct line to Papa Powell. Nobody can force Jerome Powell to do anything, not Jamie Dimon, not Donald Trump. He's his own man, running the most powerful financial institution in the world. Big bangers like Jamie Dimon, they do know more than we do, and they do have better connections.
So, maybe we're getting some insider deal here, or they're just screwing us again by manipulating the markets. Probably. Anyway, but we should listen regardless, okay? After all, he didn't become a billionaire based just on luck. Institutions like JP Morgan and their executives have an army of researchers and research people and resources and connections and all that stuff to get information well before the general public knows about it, which means Jamie Dimon's already known about this for weeks.
Right now, the market has calmed down a bit after the Trump kerfuffle with tariffs. There's back and forth. Some days we're freaking out about it, some days everything's going to be fine. It's still very headline-driven market with lots of risk in both directions. But, make no mistake, the tariff war is still on, things are still uncertain, and that uncertainty makes it more likely the Fed may have to intervene in the bond markets.
If we see further deterioration, maybe to the same levels of the pandemic, and we're talking about bond markets here specifically. Uncertainties caused those disruptions in the bond market. They overwhelmed banks, broker dealers trying to absorb the buying and the selling. We have literal countries cashing out of their bonds right now, then we could see history to some extent maybe not repeat, but rhyme.
The Fed may step in with measures like an SLR exemption to help stabilize things, which is super nerdy but essentially this means number go up, okay? When this happens, get the popcorn ready, okay? Get the champagne on order because things could get very, very exciting very quickly for cryptocurrency markets.
So, the last time this happened, Bitcoin melted faces. I know what you're thinking, it's been a while since my face melted, I'm ready. I'm ready. Thanks for watching.
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