US Fed Adds $297 Billion in One Week, Fanning Bitcoin Rally
The total amount of assets held by US Federal Reserve (Fed) banks increased by 3.56% in the past week, rising to $8.639 trillion from $8.342 trillion, trackers on the March 17 show.
The Fed injected $297 billion into the market last week
With the Fed holding assets and injecting $297 billion in the past week alone to stave off a contagion following the collapse of three banks last week, the central bank has returned to quantitative easing.
The result is what observers say is a “Fed Put”, a phenomenon where the central bank intervenes and rolls out an accommodative policy when there are sharp price falls in the stock markets. Early this week, bank stocks crashed on widespread fears of a bank run should the Fed fail to intervene.
Observers Note that the $297 billion increase in the past week was not due to asset purchases since the previous week, Treasuries and mortgage-backed securities fell.
Instead, this expansion was due to the $12 billion Bank Term Funding Program and a series of loans made to prop up large banks. For this action, the Fed dismantled what it has been trying to achieve for the past year.
The “Fed Put” is back with assets on the balance sheet increasing by $297 billion in the past week, the biggest increase higher since March 2020. Thus, almost half of the quantitative tightening since last April was undone in one week.
Bitcoin and cryptocurrency rally
After the collapse of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank, all of which were considered crypto-friendly and supported blockchain projects in a way to process funds, bank stocks collapsed across the board.
Meanwhile, USDC, a stablecoin pegged to the US dollar, was briefly delinked following news that it had $3.3 billion locked up in SVB.
Also, there was turbulence in DAI, an algorithmic stablecoin managed by MakerDAO, one of the largest DeFi protocols. MakerDAO initiated steps to ensure that DAI remains at parity with the USD, boosting MKR, the platform’s governance token.
While normalcy has returned and Bitcoin is back to trading above $26,000, a nine-month high, the intervention by the US government and the Fed appeared to have undone most of their tightening efforts in recent months.
As trackers show, the Fed has gradually unloaded assets from its portfolio in recent months. This was when they tightened the economy, and intervened to curb ongoing inflation.
However, this tightening appears to have worked, as recent economic data showed inflation fell in February to 6%, the lowest in more than 15 months. This decline in consumer prices was in line with market expectations.
Feature image from Andrew Harnik/AP, chart from TradingView
