Can Bitcoin Blast Past $30,000 After FED Warns Banks About Crypto-Related Liquidity Risk? Report
- The US Federal Reserve has warned traditional banks about liquidity risks while dealing with crypto exchanges.
- Bitcoin bulls are looking to scoop up $200 million in options expiring later today for the month of February.
One of the biggest concerns for Bitcoin (BTC) and the crypto-asset class in general is the possibility of the Fed announcing future rate hikes with inflation around. If the Federal Reserve gets aggressive with its monetary tightening measures, it could derail the growing momentum of cryptoassets.
In its latest development, the US Federal Reserve warned all national banks about the liquidity risk from crypto market volatility and the mass selling events that follow. The US Fed, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency issued a joint warning on the matter.
This statement comes at a time when regulators in the United States continue to tighten their grip on the crypto market. The nation’s top regulator the US Securities and Exchange Commission (SEC) has proposed some rule changes regarding asset custody by companies across sectors.
In its joint statement, the US central bank mentioned two types of risks for banking institutions related to digital assets. The first involves the risk of deposits of crypto assets made by crypto exchanges on behalf of their customers. Similarly, the other risk is related to deposits that make up stablecoin reserves.
As a result, the FED has recommended some effective risk management strategies against liquidity risk. It has further alerted financial institutions to unpredictable volatility in the market. The Federal Reserve noted:
The stability of deposits may be affected by, for example, periods of stress, market volatility and related vulnerabilities in the crypto-asset sector, which may be specific to the crypto-asset-related entity.
Bitcoin Bears vs. Bulls
Later today, on February 24, $1.9 billion in BTC options are set to expire. It has been a tough battle between the bears and the bulls after Bitcoin posted a surprising 16% price gain between February 13th and February 16th.
Prior to this, the bears had an expectation of a monthly option expiration below $21,500. However, while BTC rallied past strongly last week, the bulls have faced strong resistance at $25,200. This reduces the odds of the bulls securing a $500 million profit during this Bitcoin options of the month.
The main concern for the Bitcoin bulls going forward will be the tightening of monetary policy with the US Federal Reserve raising interest rates in the future. The recent FOMC meeting on February 22 shared a common consensus that the Fed can continue to raise interest rates as long as it deems necessary.
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The open interest for the options expiring today is $1.91 billion. However, the actual figure may be lower as the bears expected the BTC price to be below $23,000. But BTC’s surprise rally last week put the bears on edge.
Courtesy: Coinglass
The call-put ratio is currently at 1.55 reflecting the imbalance between $1.16 billion call (buy) open interest and $750 million put (sell) options. As of press time, BTC is trading near $24,000 and bulls could book a $200 million profit when this option expires.
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