Fed emergency loan could provide $2T liquidity, says JPMorgan – Will Bitcoin react?

YEREVAN (CoinChapter.com) – In an effort to “support American businesses and households,” the US Federal Reserve will launch a Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions in the wake of the Silicon Valley Bank contagion that took over the US banking system.

“The Federal Reserve is prepared to address liquidity pressures that may arise,” stated the Fed, despite its ongoing battle to curb runaway inflation.

These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy. […]The Board is closely monitoring conditions across the financial system.

commented the officials.

How will $2T liquidity affect the market?

Meanwhile, according to the banking giant JPMorgan Chase & Co., the Fed’s emergency loan program may inject as much as $2 trillion of funds into the US banking system. Moreover, treasury two-year yields have tumbled more than 60 basis points this week amid speculation that the Fed will skip an interest-rate hike next week as it seeks to stabilize the banking sector.

JPMorgan strategists also wrote that the large banks are unlikely to claim funds from the said loan program, as predominantly smaller banks faced the domino effect of the SVB collapse. Thus, chief strategist Nikolaos Panigirtzoglou in London wrote that “the usage of the Fed’s Bank Term Funding Program is likely to be big.”

US Reserves decline as Fed hikes rate
US banking system reserves. Source: Bloomberg.com

The Fed also said in a statement that the BTFP officials would report the use of the program funds on an aggregate basis every week when releasing data on its balance sheet. Financial analyst @tedtalksmacro told his followers to “hold on to their hats” as after getting the funds from Fed, the financial institutions “then decide what they’d like to do with it.”

Also read: First Republic Bank (NYSE: FRC) Stock Price Drop 75% In The Wake Of SVB Collapse, Gets Downgraded To Junk.

Will Bitcoin react to the emergency loan program?

The flagship crypto traded just below $25,000 on March 16, after a 50% price increase year-to-date. However, the current price is still over 60% below the $60,000 peak in Nov 2021.

Notably, the rally that flooded the Bitcoin market with approximately $500 billion in 2021 came in the wake of the Covid-19-related quantitative easing policies. While the correlation between risk-on market rallies and quantitative easing is erratic, the US stock index S&P 500 rallied nearly 30% throughout 2021, while Bitcoin price almost doubled in the same period.

Bitcoin weekly price action. Source: TradingView.com

Admittedly, the Fed’s loan program is not quantitative easing, and the funding is aimed at banks only. However, it might reverse the effects of the hawkish policies that the Fed has been implementing for several quarters, including the interest rate hikes.

The upcoming quarter will show if the contagion from the SVB bank run spreads further and if the risk-on sector avoids recession.

Also read: Bitcoin Price Prediction: Key Resistance Intact Despite Recent Rally.

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