Fed Balance Sheet Adds $393B In Two Weeks – Will This Send Bitcoin Price To $40K?
As of March 22, the Fed’s balance sheet rose by nearly $94.5 billion—a $297 billion increase from the previous week when the banking crisis began.
New QE hopes boost Bitcoin price
Overall, the US Federal Reserve’s debt increased by $393 billion over the past two weeks to $8.734 trillion. That’s closer to the all-time high of $8.95 trillion set a year ago when the Fed began its quantitative easing program and reduced its holdings by $600 billion.
The Fed released the data on March 23, coinciding with the Bitcoin (BTC) price rising 5.5% toward $29,000. The rise came amid speculation that the Fed’s expanding balance sheet is a result of quantitative easing (QE).
But the Fed did not use new dollar reserves to buy long-term Treasuries. Instead, the central bank’s holdings of US Treasuries fell by $3.5 billion to $7.937 trillion, suggesting that quantitative easing remains in place to curb inflation.
On the other hand, the Fed’s balance sheet grew because it sent short-term loans to the ailing banking sector.
Notably, on March 22, the Fed cut 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 brand new Bank Term Funding Program (BTFP).
The other $60 billion went to the Fed’s swap facility, which provides liquidity to offshore banks.
The Fed’s tightening policy and lending facilities to regional and offshore banks are at risk dries up cash liquidity. This could boost the dollar’s appreciation against other top foreign currencies, which in turn could push Bitcoin’s price lower in the short term.
Interestingly, the US dollar index has risen 1.5% since the Fed’s balance sheet update.
Has the banking crisis reached its peak?
The ongoing credit crunch may not have peaked despite the Fed’s $393 billion in emergency loans to banks, given Janet Yellen’s dim view of depositor insurance.
On March 21, the US Treasury Secretary confirmed protections for uninsured depositors above $250,000 “if smaller institutions suffer deposit runs” such as those seen at Silicon Valley Bank and Signature Bank.
But Yellen did a U-turn the next day in her remarks to the Senate that she had not considered “general insurance or deposit guarantees.” Bank stocks fell in response to her statement, resulting in another u-turn.
Yellen then told the House on March 23 that the authorities “would be prepared to take further action if warranted.”
Janet Yellen is 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 balance sheet data next week to decide whether the Fed’s commitments will fall or not.
But if these emergency lending facilities continue to rise after multiple bank collapses, QE will be inevitable, similar to what happened after the 2008 global financial crisis.
“Return of (stealth) QE via BTFP and opening of daily swap lines with friendly foreign central banks clearly signals that sovereign debt will be monetized and currencies will further depreciate. The endgame is now undeniable.” https://t.co/s5enNAJCZi
— Balaji (@balajis) March 24, 2023
Technical BTC prices suggest $40K
An expanding balance sheet – with or without QE – has proven to be positive for Bitcoin in the past. This correlation will continue if the banking crisis deepens, according to Stack Hodler, the author of the crypto-focused newsletter Stack Macro.
“BTFP, Swap Lines, TPI – It’s All QE,” the analyst noted, adding:
“It all leads to balance sheet expansion and fiat currency dilution despite many central bankers who will tell you otherwise.”
From a technical perspective, the Bitcoin price is well positioned for a run towards $40,000 by June, or 50% higher from today’s price.
As illustrated above, the upside 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 conduct their own research when making a decision.
