Bitcoin (BTC) begins a new week with a bullish surge above $22,000 as the Federal Reserve injects liquidity into the United States economy.
In a move which can rival any classic Bitcoin comeback, BTC/USD is up a full 15% off the two-month lows seen on March 10.
The volatility — and at least temporary relief for bulls — is all due to events in the U.S. after the failure of one bank and the forced halting of another’s operations.
Silicon Valley Bank and Signature Bank are the latest victims in a brutal year for financial institutions under the Fed’s rising interest rates — will the trend continue?
Despite Signature being crypto focused and a major on-ramp from fiat, crypto markets have so far seen no reason to abandon optimism at the prospect of the Fed providing fresh money.
Not everyone, however, believes that this constitutes a “pivot” on interest rate hikes or overall policy.
As the dust continues to settle and news floods in from the ongoing events, Cointelegraph breaks down the main factors moving BTC price in the short term.
Fed bails out Silicon Valley Bank depositors
The story of the moment is of course the fallout from Silicon Valley Bank (SVB) failing late last week.
Swallowing hundreds of billions of dollars in deposits, SVB was forced to take a giant $1.8 billion loss thanks to parking consumer funds in mortgage-backed securities, the price of which also suffered thanks to the Fed’s rate hikes.
A snowball effect soon began as depositors became wary that something might be wrong in terms of liquidity. Everyone attempted to withdraw from SVB at once, and the funds were unavailable, necessitating sale of assets at a loss and an emergency funding round which ultimately failed.
The result has come in the form of the Fed stepping in to backstop depositors’ money. On March 12, it announced the “Bank Term Funding Program” (BTFP).
“Depositors will have access to all of their money starting Monday, March 13,” an accompanying joint statement from the Department of the Treasury, Fed Board and Federal Deposit Insurance Corporation (FDIC) confirmed.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
As market commentators were quick to point out, the decision effectively marks a return to Fed liquidity injections — quantitative easing (QE) — whereas before, liquidity was being withdrawn from the U.S. economy.
Risk assets rallied instantly on the news, as increasing liquidity ultimately increases investor appetite for risk.
Crypto was no exception, despite U.S. authorities announcing the sudden closure of Signature Bank in a move which some argue was a direct attempt to stop crypto markets capitalizing on the SVB aftermath.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the same joint statement read.
Reacting to the creation of the BTFP, popular commentator Tedtalksmacro described it as a form of “stealth QE.”
“Unofficial quantitative easing begins on Monday. This is so bullish,” part of subsequent Twitter posts added.
“TL;DR the Fed’s balance sheet will expand and that will increase USD liquidity.”
As Cointelegraph reported, crypto as a whole is highly sensitive to central bank liquidity trends — and not just those in the U.S.
Among those underlining this is Arthur Hayes, former CEO of derivatives exchange BitMEX, who in a blog post earlier in the year spelled out how changing liquidity conditions would likely impact Bitcoin and altcoin performance.
Now, he was conspicuously bullish.
“Get ready for a face ripping rally in risk assets. MONEY PRINTER GO BRRR!!!” he told Twitter followers about the BTFP in one of several posts on March 12.
Speculation gathers over Fed interest rate “pivot”
With liquidity returning to the market, it was not just crypto wondering about the fate of the Fed’s quantitative tightening (QT) policy in place for the past 18 months.
Speculation was rampant on the day that this month’s decision on interest rate adjustments may yield either a reduction or see the Fed leave the current rate unchanged.
Previously, markets had been swinging between a 0.25% and a 0.5% increase to the benchmark rate at the March 22 meeting of the Federal Open Market Committee (FOMC).
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman Sachs economist Jan Hatzius wrote in a note on March 12 quoted by CNBC and others.
David Ingles,…
cointelegraph.com