The US Fed adds $297 Billion In A Week, Fanning Bitcoin Rally

Total assets held by the US Federal Reserve Banks rose 3.56% over the past week to $8.639 trillion from $8.342 trillion. trackers show March 17th.

The Fed injected $297 billion into the market last week.

With the Fed holding on to assets and injecting $297 billion in the last week alone to stave off contagion following the collapse of three banks last week, the central bank has returned to quantitative easing.

The result is what observers call the “Fed put”—a phenomenon whereby the central bank intervenes and implements accommodative policies whenever there is a sharp fall in stock market prices. Earlier this week, bank stocks tumbled on widespread fears of massive bank runs if the Fed doesn’t intervene.

Observers note that last week’s $297 billion gain was unrelated to asset purchases from last week, treasuries and mortgage-backed securities were down.

Instead, this expansion was tied to a $12 billion Term Bank Facility and a series of loans made to support large banks. For this action, the Fed has unleashed what they have been trying to achieve over the past year.

The Fed put is back with $297 billion in assets on their balance sheet in the last week, the biggest jump since March 2020. Thus, almost half of the quantitative tightening since last April was canceled in a week.

Bitcoin and Cryptocurrency Price Rally

After the collapse of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank, which were considered crypto friendly and helped blockchain projects process funds, bank stocks across the board plummeted.

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Meanwhile, USDC, a stablecoin pegged to the US dollar, briefly depegged after news that $3.3 billion was locked in SVB.

Moreover, there has been turbulence in DAI, an algorithmic stablecoin run by MakerDAO, one of the largest DeFi protocols. MakerDAO has taken steps to ensure that DAI remains at parity with the US dollar by raising MKR, the platform governance token.

MakerDAO Price March 17 |  Source: MKRUUSDT on Binance, TradingView
MakerDAO Price March 17 | Source: MKRUUSDT on Binance, TradingView

While normalcy has returned and Bitcoin is once again trading above $26,000, a nine-month high, the intervention of the US government and the Fed appears to have undone much of their tightening efforts over the past few months.

As trackers show, in recent months the Fed has been gradually unloading assets from its portfolio. This was when they tightened the economy by intervening to curb runaway inflation.

This tightening appears to have worked as the latest economic data showed that inflation fell to 6% in February, the lowest level in more than 15 months. This decline in consumer prices was in line with market expectations.

Feature image by Andrew Harnick / AP, chart from TradingView

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