Bitcoin breaks $26,000 following Fed’s $300 billion balance sheet addition in wake of SVB collapse
Today, all attention is focused on the Federal Reserve’s infusion of nearly \(300 billion in liquidity, which crypto Twitter called a new form of [quantitative easing](https://twitter.com/GertvanLagen/status/1636489078760677382) (QE). The simultaneous collapse of Silicon Valley Bank and Signature Bank has prompted the Fed to provide an emergency \)297 billion, resulting in an increase in its balance sheet for the first time since it began raising interest rates.
This borrowing, which has reached a new high of $150 billion, has surpassed even the 2008 global financial crisis. Peter Schiff, a notable economic forecaster and investment advisor who is well-known for his support for gold, believes that bank bailouts will result in higher inflation, rendering interest rate hikes irrelevant.
However, some observers claim that the Fed’s recent expansion of its balance sheet is not as stimulative as the one seen following the 2020 crash induced by the coronavirus. “QE is an increase in the balance sheet for monetary purposes. This is about financial stability, and all expansion of the balance sheet is not QE,” said Marc Chandler, chief market strategist at Bannockburn Global Forex and author of “Making Sense of the Dollar.”
Andy Constan, CEO of Damped Spring Advisors, expressed a similar view in a Twitter thread, stating that the increase in the balance sheet is a temporary response to the runs on several weak banks, implying that record bank borrowing indicates a fear of rapidly drying up liquidity, which could threaten the stability of the banking sector.
Despite these comments, investors became more willing to take risks and traditional stocks strengthened. The $30 billion lifeline secured by First Republic Bank and the loan received by Credit Suisse from the Swiss central bank may have contributed to a brighter outlook.
Due to the recent rescues, QCP Capital believes that the Federal Reserve is more likely to increase interest rates by 25 bps, as pausing could lead to confusion regarding the message on inflation.
Amid stresses across the banking sector leading to a decline in liquidity in the U.S. Treasury market, stablecoin issuers claim that they don’t have to worry. According to Conor Ryder, a research analyst at market data provider Kaiko, Circle has demonstrated good liquidity risk management by keeping the majority of its reserves in short-term securities that could be sold with minimal loss. Tether and MakerDAO, two other major stablecoin issuers, also assert that they have a liquid portfolio that can meet redemption demands if necessary.
According to a report from Matrixport, Bitcoin is benefiting from three factors: instability in the financial system, decreasing inflation which allows for a less hawkish Federal Reserve, and regulatory issues impacting stablecoins. Markus Thielen, Matrixport’s head of research, suggests that as these trends persist, Bitcoin prices can remain high and continue to rally. The report also notes a “flight to quality” that has driven the surge in Bitcoin prices, as investors sell higher-risk investments and move towards safer assets.
The rescue of Silicon Valley Bank was advantageous for Bitcoin enthusiasts. Another possible bullish catalyst is the Federal Deposit Insurance Corporation (FDIC)’s denial of Reuters’ report that says Signature Bank’s purchasers are required to sell their crypto assets. While FDIC’s speech of “purchasers of Signature Bank” indicates the bank possibly will continue to operate, the claim also suggests that they don’t intend to “isolate” crypto, at least for now.
Amid the fears of the banking contagion spreading and decreased confidence in financial institutions, the total crypto market cap has received an influx of $128 billion over the past seven days, representing a 13% increase. According to Clara Medalie, Kaiko’s Director of Research, the recent uptick in crypto prices is due to low liquidity in the market and high buying pressure.
All happened as Bitcoin (BTC) gained 30% since March 10 and has been challenging the weekly highs, which also marked its best performance since June 2022. The coin’s massive 8% surge today, which saw it almost reach \(26,900 before briefly going back to around \)26,438, raised hope for a straight upside to $28,000.
“(…) if we finish with a weekly close above the $25,000 then I would have to adjust my model regime to bullish as that would signal we have completed a bottoming process which started in mid-2022 and a new bull cycle is underway,” stated Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence.
Although Bitcoin was not affected by yesterday’s U.S. Initial Jobless Claims, which showed the jobs market remains overheated, investors should remain cautious. Oil prices have fallen 10% between March 9 and 15, reaching their lowest levels in over a year, due to concerns about a banking-sector confidence crisis causing a recession and reducing oil demand. If the fear of contagion spreads to other markets, Bitcoin’s upward trend may face difficulties.
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NFT Market Map
HV-MTL, after a good start yesterday, marked a -75.23% decline in trading volume as the minting has been over.
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Disclaimer: None of the information here constitutes financial advice and market participants are advised to conduct their own research since cryptocurrencies are speculative assets with considerable risks.