Central Bank Liabilities on the Rise
The U.S. central bank's liabilities could increase if more regional banks fail, which may create a positive scenario for Bitcoin's price. The United States Federal Reserve's balance sheet has surged by nearly $94.5 billion as of March 22, totaling a $297 billion increase since the banking crisis began last week.
Quantitative Easing Speculations Drive Bitcoin Rally
In the past two weeks, the U.S. central bank's liabilities have grown by $393 billion, reaching $8.734 trillion. This growth was approaching an all-time high of $8.95 trillion from a year ago when the Fed initiated its quantitative tightening program. This data release coincided with a 5.5% rally in Bitcoin's price, driven by speculation around the Fed's expanding balance sheet and potential quantitative easing (QE).
Fed's Tightening Policy Continues
Despite speculations, the Fed has not used new dollar reserves to purchase long-term Treasurys. The central bank decreased its U.S. Treasury holdings by $3.5 billion, indicating that quantitative tightening is necessary to combat inflation. The Fed's balance sheet growth is due to short-term loans provided to the struggling banking sector.
Banking Crisis May Not Have Peaked
The ongoing credit crisis may not have peaked, even with the Fed's $393 billion emergency lending to banks. U.S. Treasury Secretary Janet Yellen's statements regarding depositors' insurance need to be more consistent, causing uncertainty in the market. The upcoming balance sheet data will determine if the Fed's liabilities are declining.
Potential QE Impact on Bitcoin Price
If emergency lending facilities continue to rise due to more bank collapses, QE may become inevitable. This scenario has historically been bullish for Bitcoin. Crypto analyst Stack Hodler suggests that the correlation between an expanding balance sheet and Bitcoin's price will continue if the banking crisis worsens.
Technical Analysis Indicates $40K Bitcoin Price
From a technical perspective, Bitcoin's price is well-positioned for a run up to $40,000 by June, a 50% increase from the current price. This prediction is based on Bitcoin's inverse head-and-shoulders breakout setup on the weekly chart.