Markets are starting to price in an incoming Fed pivot as bank instability forces central banks to protect the financial system.
Analysis from CryptoQuant analyst Cristian Palusi suggests that the liquidity crises now plaguing commercial banks may be a “long-awaited buy signal” for Bitcoin.
Banks Down, Bitcoin Up
In a post published on Thursday, Palusci noted that the implied federal funds’ policy rates have severely shortened their time frame for when they think the central bank will first cut rates again, from Q1 2024 to June 2023.
Meanwhile, gold and Bitcoin are on the rise: the precious metal surged to nearly $2000 as of Friday, while its oft-considered digital successor rose to another 9-month high of $27,000.
“One of the elements that represented a clear buy signal emerged immediately after the bankruptcy and related bailout of the Silicon Valley Bank: the Coinbase premium,” wrote Palusci. Coinbase (COIN) has risen over 37% over the last 5 days, and is known to be tightly correlated with the crypto asset market that it enables trades for.
“Initially the spread could have had a double interpretation following the depeg of USDC, in light of the recent price action it is clear that instead the premium indicated the enormous buy pressure on the exchange due to the fact that American investors considered the $20K area as a very interesting level,” he continued.
The Pivot is Coming
Silicon Valley Bank (SVB) was home to $3.3 billion worth of Circle’s USDC reserves, with which Coinbase is largely affiliated. When the bank was closed by regulators on March 10th, USDC lost briefly lost its peg to the dollar, and declined alongside both COIN and Bitcoin.
Now, all three have recovered in spectacular fashion after the Federal Reserve promised to bail out depositors to both SVB and Signature. The central bank also launched a special loan program for federally insured depository institutions, which has already been used by banks to borrow $300 billion within a week.
On Thursday, BitMEX co-founder Arthur Hayes called the program a roundabout form of quantitative easing that would ultimately pump Bitcoin – a sentiment with which Palusci agreed:
The investment bank JP Morgan stated that the Fed’s Bank Term Funding Program (BTFP) will inject $2 trillion into the financial system,” he noted, “and with a similar acronym, the buy the dip invitation seems pretty explicit.”
Leverage within the crypto-sphere also appears to be down compared to its level in October 2022, which could “could represent further elements to fuel the rally when central banks formalize the pivot.”