As of March 22, the fed balance sheet rose by almost $94.5 billion, an increase of $297 billion from the last week when the banking crisis began.
New QE hopes to boost Bitcoin price
Overall, US central bank liabilities rose $393 billion in the past two weeks to $8.734 trillion. That’s closer to the all-time high of $8.95 trillion a year ago, when the Federal Reserve began its quantitative tightening program and reduced its assets by $600 billion.
The Fed released the data on March 23, coinciding with the price of Bitcoin (BTC) rising 5.5% towards $29,000. The rise came amid speculation that the Fed’s balance sheet expansion is the outcome of quantitative easing (QE).
But the Fed did not use new dollar reserves to buy long-term Treasury bonds. Instead, the central bank cut its US Treasury holdings by $3.5 billion to $7.937 trillion, suggesting that quantitative tightening is still in place to curb inflation.
On the other hand, the Fed’s balance sheet grew because it sent short-term loans to the failing banking sector.
Notably, effective March 22, the Fed reduced the use of its “discount window,” which helps commercial banks manage short-term liquidity needs, by $42 billion. Instead, it allocated the same $42 billion to its new Bank Term Financing Program (BTFP).
The other $60 billion went to the Fed’s swap facility that provides liquidity to offshore banks.
The Fed’s tightening policy and lending facilities for the risk of regional and offshore banks drying up cash liquidity. This may drive the dollar’s valuation against other major foreign currencies, which, in turn, could drive the price of Bitcoin lower in the short term.
Interestingly, the US dollar index has gained 1.5% since the Fed’s balance sheet update.
Has the banking crisis peaked?
However, the ongoing credit crunch may not have peaked despite the Fed’s $393 billion emergency loans to banks, considering Janet Yellen’s blurry perspective on bank insurance. depositors.
On March 21, the US Secretary of the Treasury. confirmed protect uninsured depositors of more than $250,000 “if smaller institutions experience runs on deposits” like those witnessed at Silicon Valley Bank and Signature Bank.
But Yellen made a U-turn the next day in remarks to the Senate that she had not considered “general insurance or deposit guarantees.” Shares in the bank plunged in response to his statement, resulting in another U-turn.
Yellen then told the House on March 23 that authorities “would be prepared to take additional action if warranted.”
Janet Yellen is either too old, incompetent, or a liar.
Choose your poison. https://t.co/Vy8CJZm2x1
— The wolf of all streets (@scottmelker) March 23, 2023
In any case, the market will have to wait for next week’s balance sheet data to determine whether or not the Fed’s liabilities are declining.
But if these emergency credit lines keep increasing after more banks fail, then QE will be inevitable, similar to what happened after the 2008 global financial crisis.
“The return of (stealth) QE via the BTFP and the opening of daily swap lines with friendly foreign central banks clearly indicates that sovereign debt will be monetized and currencies further debased. The endgame is now undeniable.” https://t.co/s5enNAJCZi
Balaji (@balajis) March 24, 2023
BTC price technical data points to $40K
An expanding balance sheet, with or without QE, has proven bullish for Bitcoin in the past. This correlation will continue if the banking crisis deepens, according to Stack Hodler, the author of the crypto-focused Stack Macro newsletter.
“BTFP, Swap Lines, TPI – It’s all QE”, the analyst notedadding:
“It all leads to balance sheet expansion and fiat currency dilution despite the fact that many Central Bank fans will tell you otherwise.”
From a technical perspective, the Bitcoin price is well positioned to hit $40,000 in June, or 50% higher than the current price.
As illustrated above, the bullish target originates from Bitcoin’s inverse head and shoulders (IH&S) breakout setup on the weekly chart.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
