As the US Federal Reserve's Bank Term Financing Program (BTFP) nears its conclusion on March 11, 2024, the bitcoin and cryptocurrency market is at a critical juncture. Instituted in March 2023 following the sudden collapses of Signature Bank and Silicon Valley Bank, the largest since the 2008 financial crisis, the BTFP has been a lifeline for US banks, offering loans with high-quality collateral to ensure liquidity in times turbulent. .
The closure of the BTFP and its implications for bitcoin
The conclusion of the BTFP could have repercussions on the financial sector, affecting banks' liquidity and possibly leading to tighter lending practices. Cryptoanalyst Furkan Yildirim recently detailed at X, “With the end of the BTFP, banks may face liquidity constraints that will impact their operations and profit margins. This could slow economic growth due to reduced credit.”
However, he added that “the Federal Reserve could counter this by adopting a more lenient monetary policy, which could stabilize asset prices and prove beneficial for bitcoin and the broader market.”
Arthur Hayes, the visionary behind BitMEX, provided a similar opinion in one of his latest essays. He identifies a trio of macroeconomic indicators – the Reverse Repurchase Program (RRP), the BTFP, and the impending March interest rate decision – as pivotal for the bitcoin and cryptocurrency market.
Hayes predicts a severe market correction if liquidity sources, including the BTFP, dry up. “The market could face a harsh reality without new injections of dollar liquidity,” he suggests, indicating a potentially difficult transition period for all asset classes, including cryptocurrencies.
The BitMEX founder anticipates a tumultuous March, with the possibility of a 30-40% correction in bitcoin prices triggered by the BTFP expiration. However, he remains optimistic about a possible rally ahead of the Federal Reserve meeting on March 20, and hypothesizes that the Fed's anticipatory actions, such as rate cuts, could revitalize the market.
“This critical period could define the short-term liquidity scenario, offering a rebound opportunity for bitcoin before further evaluating the impact of the Federal Reserve's decisions on market dynamics,” he explains.
More expert opinions
Balaji Srinivasan, former CTO of Coinbase, recently also Offered a strategic point of view on the synchronicity of more key events, “BTFP expires in March. btc Halves in April. The PVP ends in May. Almost at the same time. Therefore, the US banking system is stressed just when bitcoin is in short supply.” His analysis highlights the coincidence of the BTFP conclusion with the bitcoin halving event, suggesting a unique set of circumstances that could amplify market reactions.
btc Markets host Ansel Lindner provided commentary amid growing concerns over regional banking stability. Following revelations of a “material weakness” in New York Community Bank's (NYCB) credit risk monitoring and a significant increase in its reserves for credit losses earlier this month, Lindner flagged possible early signs of other stress in the sector banking.
“It's starting… Remember what happened with bitcoin during the banking crisis last March? The BTFP was created on March 12, 2023, bitcoin rallied 40% in 2 weeks. #SafeHaven”, Lindner sayinghighlighting bitcoin's potential if the US Federal Reserve decides to intertwine again.
In conclusion, the bitcoin and cryptocurrency markets are at a crossroads on March 11, with potential outcomes ranging from significant declines to bullish recoveries, depending on the actions of the Federal Reserve and broader macroeconomic trends. The end of the BTFP means more than simply the cessation of a temporary liquidity program; It represents a moment of truth for the resilience of the banking sector and the cryptocurrency market's response to changing economic tides.
At the time of publication, btc was trading at $67,005.
Featured image created with DALL·E, chart from TradingView.com
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