Bitcoin and cryptocurrencies are reacting bullishly to news that the Fed is once again providing liquidity after the failures of Silicon Valley Bank and Signature Bank.
The new week begins with a bullish surge above $22,000 as the US Federal Reserve injects liquidity into the US economy.
In a move that could rival a classic Bitcoin resurgence, BTC/USD is 15% higher than its two-month low seen on March 10.
Temporary relief for volatility and bulls comes from events in the US following the failure of one bank and the forced closure of another.
Silicon Valley Bank (SVB) and signatories are the new victims in a brutal year for financial institutions under the Fed’s rate hikes – will the trend continue?
Despite the signing being crypto-focused and a major entry point from fiat currency, the crypto market has so far given up reason to give up optimism about the prospect of the Fed providing new funding. I haven’t seen it.
Not everyone believes it forms a “pivot” for rate hikes or overall policy.
As the dust continues to settle and news floods in from ongoing events, Cointelegraph analyzes the key drivers driving BTC’s price in the short term.
Fed bails out Silicon Valley bank depositors
The story of that moment is, of course, the fallout from Silicon Valley Bank (SVB), which collapsed on March 10th.
His SVB, which swallowed hundreds of billions of dollars in deposits, was forced to lose a whopping $1.8 billion as it deposited consumer funds in mortgage-backed securities.
A snowball effect soon set in, as depositors became alarmed that something was wrong with their liquidity. Everyone immediately tried to exit his SVB, but no funds were available, forcing him to sell loss-making assets and make an emergency funding round that ultimately failed.
The result was that the Fed intervened to return depositors’ money. On March 12th, the Bank Term Funding Program (BTFP) was announced.
“Depositors will have access to all funds beginning Monday, March 13,” confirmed an accompanying joint statement from the Treasury Department, the Fed, and the Federal Deposit Insurance Corporation (FDIC).
“The taxpayer will not bear any losses related to Silicon Valley Bank’s decision.”
As market pundits are quick to point out, this decision effectively marks a return to his Fed’s liquidity injection — quantitative easing (QE) — which previously pulled liquidity out of the U.S. economy. .
Risky assets quickly rose on the news as increased liquidity ultimately increased investor appetite for risk.
Cryptocurrencies were no exception, even as US authorities announced the abrupt closure of signatory banks. Some say they directly tried to stop the cryptocurrency market from capitalizing on the aftermath of SVB.
“We are also announcing a similar systemic risk exception today for our signature bank in New York, NY, which has been shut down by government regulators. As with Valley Bank’s decision, taxpayers will not bear the loss,” the joint statement said.
Popular commentator Tedtalksmacro, in response to the creation of BTFP, described it as a form of “stealth QE.”
“Unofficial quantitative easing starts Monday.
“TL;DR The Federal Reserve’s balance sheet will grow, which will increase the liquidity of the US dollar.”
As reported by Cointelegraph, cryptocurrencies as a whole are very sensitive to central bank liquidity trends, not just in the United States.
Underscoring this is Arthur Hayes, former CEO of BitMEX Derivatives, who wrote in a blog post earlier this year how changing liquidity conditions are affecting the performance of Bitcoin and altcoins. It explains how it might affect you.
Now he was surprisingly bullish.
“Get ready for the risk asset showdown. .
Fed rate ‘pivot’ sparks speculation
Cryptocurrencies weren’t the only ones to question the fate of the Fed’s Quantitative Tightening (QT) policy, which has been in place over the past 18 months, as liquidity returned to the market.
This month’s decision to adjust interest rates has sparked speculation that the Fed may cut rates or leave current rates unchanged.
Earlier, at his March 22nd meeting of the Federal Open Market Committee (FOMC), the market had oscillated between a 0.25% gain to a 0.5% gain against benchmark rates.