Following the collapse of Silvergate, Silicon Valley Bank and Signature in early March, the US authorities announced the launch of the Banking Sector Emergency Loan Program (BTFP) to help the industry overcome the liquidity crunch. Loans for up to one year will be provided to banks and other depository institutions secured by securities such as treasury bonds. This should relieve banks of the need to quickly sell these securities in the event of a crisis. According to JPMorgan analysts, the US Federal Reserve System (FRS) can inject up to $2 trillion into the US banking system under this program, Bloomberg reported. $2 trillion is the nominal amount of bonds held by US banks outside the top five, strategists say. The largest players are unlikely to need these loans, according to JPMorgan.
After the bankruptcy of three American banks became known and assistance from the US authorities was announced, well-known bitcoin enthusiasts, businessman Robert Kiyosaki and ex-head of BitMEX Arthur Hayes, said that the US authorities would begin to inject liquidity into the economy. Kiyosaki called for investing in gold, silver and bitcoin, and Hayes noted that the actions of the authorities could lead to a “rapid rally” in the risk assets market. According to him, the reaction to the BTFP program will begin to unfold on March 17, from the moment the Asian markets open.
By itself, the injection of a potential $2 trillion into the banking system will not directly affect the BTC rate, according to analysts of our project. But investors in the financial markets, primarily in the stock markets, unequivocally interpret this as a signal that the US Federal Reserve is ready to move from quantitative tightening and raising interest rates to dovish steps that will once again flood the markets with liquidity. And, of course, from the point of view of the risk on strategy (when investors are willing to take more risks in the hope of high profits), this will play into the hands of both stock prices and, indirectly, the prices of cryptocurrencies.
At the same time, our analysts note that such an injection will not be like what happened in the spring of 2020 against the backdrop of the COVID pandemic, when the number of participants in the cryptocurrency market and its capitalization increased significantly due to the distribution of “helicopter money”. In mid-March 2020, the bitcoin rate began to grow from $15.6 thousand, going through periods of minor corrections, and reached $29 thousand by the end of the year.
Since the US banking system is not directly related to digital assets, therefore, it is not worth expecting a significant increase in capitalization now due to the Fed injecting money into the country’s banking system. Most likely, it is not the fact of the liquidity injection from the Fed itself, but other events that can stimulate the growth in the value of bitcoin. On March 14, the price of the first cryptocurrency rose above $26,000, and the reason for this was information about a slowdown in inflation in the United States. This testifies to the correctness of the chosen policy on the part of the regulator, which went for a tightening of the monetary policy. Our experts note that given this level of inflation, the Fed may well revise its plans for a further increase in the rate: either the regulator will leave it at the current level, or raise it by a minimum step of 0.25 percentage points. and both of these decisions will be positive for the stock market. And as you know, bitcoin correlates with US stock indices. That is, after the Fed’s decision on the rate on March 22, the indices may go up, and after them, Bitcoin, which is capable of exceeding $28,000 on positive news.
All This can happen if some events that are difficult to predict do not occur over the next week, our analysts also note. They suggest that this may be another news about problems in the banking sector in the US, Europe or Asia. Such uncertainty makes its own adjustments, so you will have to wait until March 22 to see the trend for the growth or decline of cryptocurrencies.
