Markets are beginning to price in an incoming Fed pivot as banking instability forces central banks to protect the financial system.

Analysis by CryptoQuant analyst Cristian Palusi suggests that the liquidity crises now affecting commercial banks may be a “long-awaited buy signal” for Bitcoin.

Banks down, Bitcoin up

in a mail Posted Thursday, Palusci noted that the implicit federal funds policy rates have severely shortened their time frame for when they think the central bank will cut rates again for the first time, from the first quarter of 2024 to June 2023.

Meanwhile, gold and Bitcoin are on the rise: the precious metal rose to nearly $2,000 as of Friday, while it is often considered digital successor rose to another 9-month high $27,000.

“One of the items that represented a clear buy signal emerged in the immediate aftermath of the bankruptcy and related bailout of Silicon Valley Bank: the Coinbase premium,” Palusci wrote. Coinbase (COIN) has surged over 37% in the last 5 days, and is known to be closely related to the crypto asset market for which it enables transactions.

“Initially, the spread could have had a double take after the USDC unpegged, in light of the recent price action it is clear that the premium was instead indicating the enormous buying pressure on the exchange due to the fact that that US investors viewed the $20K area as a very interesting level,” he continued.

The pivot is coming

Silicon Valley Bank (SVB) hosted $3.3 billion worth of Circle USDC reserves, with which Coinbase is largely affiliated. When regulators shut down the bank on March 10, USDC briefly lost its peg to the dollar and declined along with COIN and Bitcoin.

Now all three have recovered in spectacular fashion after the Federal Reserve promised to bail out depositors of both SVB and Signature. The central bank also launched a special loan program for federally insured deposit takers, which banks have already used to borrow $300 billion within a week.

On Thursday, BitMEX co-founder Arthur Hayes called he programs a roundabout form of quantitative easing that would ultimately boost Bitcoin, a sentiment Palusci agreed with:

Investment bank JP Morgan stated that the Fed’s Bank Term Financing Program (BTFP) will inject $2 trillion into the financial system,” he noted, “and with a similar acronym, the invitation to buy the immersion seems quite explicit.”

Leverage within the crypto sphere also appears to be low compared to its level in October 2022, which could “represent more elements to fuel the rally when central banks formalize the pivot.”

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