Bitcoin to $30,000? Fed unveils tools to save non-US banks
As the US banking crisis grows into a global banking crisis, the Bitcoin price is trading above $28,000 again, showing an extremely strong trend that suggests further gains. One of the main reasons to be positive in this regard is that the money printer has been turned on again by the US central bank (Fed).
As NewsBTC reported, the Fed added a whopping $300 billion to its portfolio last week, offsetting half of all quantitative easing (QT) over the past 12 months. And the money printer will run even hotter starting today.
Fed announces new swap lines
On Sunday, March 19, the Federal Reserve and six of the world’s largest central banks announced a “coordinated action” to facilitate dollar-denominated bank transactions to calm financial markets.
The Fed, the European Central Bank (ECB) and the central banks of Japan, the UK, Switzerland and Canada will expand their swap operations, which central banks use to exchange foreign currencies with each other, starting today, Monday and continuing at least through April. The measure is intended to give central banks outside the US better liquidity of US dollars.
The central banks reportedly agreed to increase the frequency of seven-day dollar currency swaps from weekly to daily. The exchange agreements have been in place for several years – previously with a weekly term.
How it works? The Fed lends dollars to foreign central banks. At the end of the term, the Fed exchanges the currencies back to the original exchange rate and collects interest. It is worth noting that the statement comes just hours after UBS announced its so-called “takeover” (aka bailout) of Credit Suisse.
Here’s why it’s bullish for Bitcoin
For BitMEX founder Arthur Hayes, the new swap lines are “another way to save non-US banks that is not obvious to the average person.” According to himis it politically dangerous for the Fed to bail out foreign banks when so many small American banks need help.
WSJ reported a few days ago that 186 banks face the same risk as Silicon Valley Bank. At the same time, the Fed cannot allow foreign banks to throw their government bonds into a liquid market and turn it up even more.
The solution, according to Hayes, is switch lines. The Fed provides USD liquidity to major central banks such as the ECB, while the ECB allows EU banks to provide US Treasuries at par. This ensures that the ECB can provide US dollars to the banks, which can then handle any outflows of USD deposits.
As a result, the US Treasury bond market is stabilized because no Treasuries are actually being sold. Any profits and losses are borne by the central bank, which can absorb infinite losses, which is reflected in the ECB’s balance sheet.
“Long term: all government bonds held throughout the banking system of developed countries can now be lent out at par. Money Printer Go Brr,” Hayes concluded. In effect, the Fed becomes the global lender of last resort.
Following the latest news, the Bitcoin price is currently showing an extremely strong upward trend. As the 1-hour chart below shows, the hourly uptrend is still intact. At press time, Bitcoin was trading at $28,160.
Featured image from iStock, chart from TradingView.com
