Bitcoin Bulls Gain Strength, But Is The Fed Really Forced To Swing?

by James · March 13, 2023

According to a tweet today from Arthur Hayes, co-founder of BitMEX, Bitcoin and the broader crypto market clear for a new bull run in the face of the brewing banking crisis. But there are some question marks behind the claim.

Will the Fed really make an early pivot even if inflation remains hot? Has the Fed really turned up the money printing machine again to bail out Silicon Valley Bank (SVB) and kick off Quantitative Easing (QE)? There is extremely high speculation about this at the moment, but the answer is far from clear.

Will Fed Pivot and Bitcoin Rise?

US Federal Reserve (Fed) Chairman Jerome Powell has consistently emphasized in recent months that he will continue to raise interest rates until inflation returns to 2% or until something breaks. And that moment may have arrived, as analyst Dylan LeClair, among others, explains in his latest tweet, referring to Fed Funds Futures.

Boy oh boy here we go.

The first real cracks in the Fed’s tightening regime have appeared, and they happened FAST. pic.twitter.com/PrEQRft9qS

— Dylan LeClair 🟠 (@DylanLeClair_) March 13, 2023

Treasury Secretary Janet Yellen admitted in an interview with CBS that the SVB collapse was not caused by the crypto or tech industry at its core. She admitted that SVB’s problem was buying government bonds.

The problems of this bank [SVB]from reporting on the situation, suggests that because we are in a higher interest rate environment, it loses assets it has, many of which are treasury funds, or mortgage-backed securities guaranteed by the government, and the problems. of the technology sector is not at the heart of this bank’s problems.

And Powell should be equally aware of this. “The Fed by buying low cost bonds at par has just admitted that the entire US banking sector has an asset/liability mismatch and it is 100% due to easy and tight monetary policy. Powell does not want this,” Hayes explained recently.

Has something broken?

And the first cracks in the Fed’s quantitative easing (QT) cycle are imminent. Through its new Bank Term Funding Program, the Fed is bailing out all lost deposits at banks that have closed, such as Silicon Valley Bank and Signature Bank. Even if the Fed only replaces existing money, the signaling effect is clear.

The Fed has raised interest rates so quickly that something in the financial system has been broken and is ready to back off. That’s the view of the popular analyst “tedtalksmacro”, who wrote today, “Unofficial quantitative easing begins on Monday. This is so bullish [for Bitcoin].”

But what is the implication? Will the Fed stop interest rate hikes completely? Citi’s Hollenhorst mean that before the Fed acted, the recent bank failures were unlikely to be systemic, and that possibility is even less likely now.

“We believe that the terminal rate is likely to reach at least 5.5-5.75% and remain at that level for some time. A rate hike of 50 bps is still possible,” Hellenhorst concluded.

Dissent is Goldman Sachs, which no longer expects a Fed rate hike next week amid concerns about the banking system and forecasts that the Fed will suspend its rate hikes in March before raising 25 bps in April, May and June.

Traders appear to agree more with Gold Sachs, as 2-year US yields posted one of the biggest three-day drops in history. As Bloomberg journalist Lisa Abramowicz pointed out, it’s amazing how much traders have lowered expectations for the Fed’s final policy rate.

They now expect the Fed to raise interest rates just one more time before cutting them later this year. The implied peak has fallen from an expected 5.7% on Thursday to 4.8%

It’s amazing how much traders have lowered their expectations for Fed terminal rates. They now expect the US Federal Reserve to raise interest rates just one more time before cutting them later this year. The implicit top rate is down to 4.8% from the expected 5.7% on Thursday. pic.twitter.com/z2piNUCRsj

— Lisa Abramowicz (@lisaabramowicz1) March 13, 2023