The Fed’s BTFP program is officially over — Will Bitcoin price take another blow?

0


The conclusion of the Bank Term Funding Program (BTFP) on March 11, presents a potentially pivotal moment for various financial markets, including the cryptocurrency sector and, by extension, the price of Bitcoin (BTC).

Bitcoin, the new “gold” 

Established as a financial tool to support liquidity and stability within banking institutions, the BTFP plays a crucial role in the broader financial ecosystem. The program ended on March 11 as BTC price hit a new all-time high three days later.

However, market participants and observers are now closely watching the end of BTFP’s possible repercussions on asset prices, particularly in the volatile crypto market.

The BTFP, by providing loans against high-quality securities, aimed to bolster banks’ confidence and liquidity, ensuring they could meet depositors’ demands without resorting to the sale of assets at distressed prices.

This mechanism indirectly supported broader financial markets by maintaining a level of liquidity and stability. However, with its ending, there could be shifts in market dynamics, including the potential for increased volatility in traditional financial markets.

Bitcoin, often touted as “digital gold” and a hedge against traditional financial market instability, could see varied impacts from the cessation of the BTFP.

One possible outcome is an increase in Bitcoin’s price, driven by investors seeking alternative stores of value amid renewed volatility in traditional markets. This flight to safety could enhance Bitcoin’s appeal, reinforcing its status as a viable alternative investment.

The ongoing fragility in the banking system, highlighted by the BTFP, could bolster Bitcoin’s price and narrative as a safe haven asset, much like during the 2023 banking crisis, according to Jonathan Solomon, the co-founder and co-CEO of ARIA algorithmic rating investment firm. He told Cointelegraph:

With the banking sector’s stability still in question and the BTFP concluding, there’s a perceived risk to the banking sector that could, in turn, positively influence Bitcoin’s appeal. The potential for Bitcoin to attract more investors is now even greater, given the availability of the Bitcoin Spot ETF, which wasn’t the case in March 2023.

Tighter liquidity bad for Bitcoin price?

Conversely, the end of the BTFP could also lead to tightening liquidity conditions in traditional markets, prompting investors to liquidate riskier assets, including cryptocurrencies, to cover positions in more traditional markets.

This scenario could result in downward pressure on Bitcoin’s price, at least in the short term, as market participants adjust to the new liquidity environment.

Moreover, the end of the BTFP could influence investor sentiment and risk appetite across financial markets. In a landscape where liquidity is perceived to be decreasing, risk aversion could increase, potentially dampening the appetite for high-volatility assets like Bitcoin. This sentiment-driven factor could play a significant role in Bitcoin’s price movements post-BTFP.

Tighter liquidity conditions could impact investor appetite towards digital assets like Bitcoin, according to Terence Kwok, the founder of Human Institute. Kwok told Cointelegraph:

“In scenarios where investors perceive increased market risk or face liquidity constraints, they might reallocate their investments towards safer assets, potentially affecting Bitcoin’s price negatively in the short term.”

However, the end of BTFP could have no direct, short-term effect on Bitcoin price, and any indirect effects would take months to materialize, according to Matteo Greco, a research analyst at Fineqia International digital asset investment firm. Greco told Cointelegraph:

The conclusion of BTFP could potentially strain the banking system, particularly smaller banks, which might have repercussions on the banking sector and, consequently, the macroeconomic landscape. This could indirectly affect risk-on assets like BTC, but the magnitude and timing of such an impact are uncertain. 

Bitcoin price fell over 12% during the past week to $63,124 as of 1:33 p.m. in UTC amid net negative flows for Bitcoin ETFs. This trend correction aligns with Bitcoin’s historic pre-halving price patterns and broader financial markets, according to Avhit Bij, the co-founder of Apex Alpha Academy. He told Cointelegraph:

“The closure of the BTFP will surely dampen liquidity within the sphere and increase callback rates from profits. However, the long view is that BTC is the chosen asset for a hedge against fiat, and considering that institutions and retail are primarily looking at BTC, we will overcome the short-term waves that could come through.

Bitcoin has officially entered its historical pre-halving retracement zone, in line with the 20% correction from 2020 and the 40% correction in 2016, according to pseudonymous analyst Rekt Capital, who wrote in a March 19 X (formerly Twitter) post:

“Currently, $BTC is approximately 28 days away from the Halving and has pulled back -14% in total since last week.”

BTC/USD, 1-week Chart. Source: Rekt Capital, X

It’s also important to consider the broader macroeconomic context, including interest rates, inflation, and geopolitical events, which will continue to influence Bitcoin and cryptocurrency markets. The interaction between these factors and the end of the BTFP could create complex market dynamics, making it challenging to predict Bitcoin’s price direction with certainty.

Therefore, while the end of the Bank Term Funding Program marks a significant moment for financial markets, its direct impact on Bitcoin’s price is multifaceted and uncertain. Factors such as market liquidity, investor sentiment, and broader economic conditions will all play a role in shaping the BTC price trajectory in a post-BTFP world.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.