With the US Federal Reserve’s Bank Term Funding Program (BTFP) nearing completion on March 11, 2024, the Bitcoin and crypto market is at a critical juncture. Established in March 2023 in the wake of the sudden collapse of Signature Bank and Silicon Valley Bank, the largest since the 2008 financial crisis, BTFP has been a lifeline for US banks, offering loans against high-quality collateral to to guarantee liquidity in turbulent times. .
The closure of the BTFP and its consequences for Bitcoin
The BTFP’s conclusion could send a shock through the financial sector, affecting banks’ liquidity and potentially leading to stricter lending practices. Crypto analyst Furkan Yildirim recently detailed about X: “With the end of the BTFP, banks may face liquidity constraints that impact their operations and profit margins. This could slow economic growth due to reduced lending.”
However, he added that “the Fed could counter this by pursuing looser monetary policy, which could stabilize asset prices and prove beneficial for Bitcoin and the broader market.”
Arthur Hayes, the visionary behind BitMEX, expressed a similar opinion in one of his latest essays. He identifies three macroeconomic indicators – the Reverse Repo Program (RRP), the BTFP and the upcoming March interest rate decision – as crucial for the Bitcoin and crypto market.
Hayes predicts a severe market correction if liquidity sources, including BTFP, dry up. “The market could face a harsh reality check without new liquidity injections into the dollar,” he suggests, pointing to a potentially rough transition period for all asset classes, including cryptocurrencies.
The founder of BitMEX expects a tumultuous March, with the possibility of a 30-40% correction in Bitcoin prices due to the BTFP expiration. Still, he remains optimistic about a possible recovery ahead of the March 20 Federal Reserve meeting, supposing that anticipatory actions by the Fed, such as rate cuts, could revive the market.
“This critical period could determine the near-term liquidity scenario and provide a recovery opportunity for Bitcoin before further assessing the impact of the Fed’s decisions on market dynamics,” he explains.
More expert opinions
Balaji Srinivasan, former CTO of Coinbase, also recently offered a strategic position on the synchronicity of more important events: “BTFP ends in March. BTC halves in April. The suggested retail price expires in May. All around the same time. The American banking system is therefore coming under pressure as Bitcoin becomes scarce.” His analysis underlines the coincidental timing of the BTFP’s conclusion with Bitcoin’s halving, indicating a unique set of circumstances that could amplify market reactions.
BTC Markets host Ansel Lindner commented amid growing concerns about the stability of the regional banking system. Following revelations of “material weakness” in New York Community Bank’s (NYCB) credit risk tracking and a significant increase in loan loss reserves earlier this month, Lindner pointed to possible early signs of new stress in the banking sector.
“It’s starting… Remember what happened to Bitcoin during the banking crisis last March? The BTFP was founded on March 12, 2023 and Bitcoin rose 40% within 2 weeks. #SafeHaven,”Lindner saidwhich highlights the potential for Bitcoin if the US Fed decides to reweave.
In conclusion, the Bitcoin and crypto markets are at a crossroads on March 11, with possible outcomes ranging from significant downturns to bullish recoveries depending on the Federal Reserve’s actions and broader macroeconomic trends. The end of the BTFP means more than just the termination of a temporary liquidity program; it represents a moment of truth for the banking sector’s resilience and the crypto market’s response to changing economic tides.
At the time of writing, BTC was trading at $67,005.
Featured image created with DALL·E, chart from TradingView.com
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