The Fed announced “additional funding” on March 12 to backstop the banking sector. The crypto market cap rose to pre-crisis levels following the announcement — triggering a wave of bullishness.
Last week saw markets tank over rumors Silvergate was insolvent. On March 9, those fears were realized as the crypto bank said it intended to wind down its operations. Other systemic risks presented as Signature Bank and Silicon Valley Bank also collapsed.
As the crisis unfolded, the crypto market cap recorded a local bottom of $912.84 billion on March 10 — marking an eight-week low. Market leader Bitcoin lost $20,000 — finding support at $19,600 and sparking expectations of further key support level losses.
However, following the Fed’s emergency measures, the crypto market saw a jump in valuation that peaked at $1.03 trillion — recording a 13% increase from trough to peak.
Quantitative easing (QE) is back
The Fed’s Bank Term Funding Program (BTFP) will offer financial institutions loans of up to one year to the par value of assets held. It will provide additional liquidity “against high-quality securities,” thus removing the push to force sell said securities.
“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.”
Founder of Custodia Bank Caitlin Long — having been through the BTFP term sheet — pointed out the program’s generosity, including non-U.S. banks being eligible, the asset par value being offered, no fees, no prepayment penalties, and a $25 billion “exchange stabilization” fund.
Commenters raised concerns that the U.S. taxpayer is on the hook for this program. Others said individuals do not receive similar open-handed treatment on personal debt.
Crypto, risk-on assets to benefit
Chiming in, Bitcoin maximalist Max Keiser said the Fed caved in and was unable to taper their Ponzi. He estimated the program will cost $50 trillion, triggering “an easy 10x from here” for the leading cryptocurrency.
“Now we’ll the biggest flood of money printing in history. Easily more than $50 trillion.“
Former BitMEX CEO Arthur Hayes echoed Keiser’s sentiment, tweeting, “Are you ready for the mother f*cking bull market?”
Nonetheless, despite the renewed optimism, Long warned that the action will only kick the can down the road, with inflation set to keep running red hot.