Sat, May 27, 2023

$30k For Bitcoin? Fed Introduces New Weapon To Save Foreign Banks


$30k For Bitcoin? Fed Introduces New Weapon To Save Foreign Banks



The price of bitcoin is once again trading above $28,000, displaying an extraordinarily strong trend that points to future gains as the American banking crisis intensifies into a global banking crisis. The US Federal Reserve has restarted the money printer, which is one of the primary reasons to continue being bullish in this regard (Fed).


According to NewsBTC, the Fed increased its portfolio by a staggering $300 billion last week, offsetting half of all quantitative tightening (QT) in the previous year. And as of right now, the money printer will be running much hotter.



New Swap Lines Announced by Fed


In an effort to stabilize the financial markets, the Federal Reserve and six of the biggest central banks in the world declared a “coordinated action” on Sunday, March 19.


Starting today, Monday, and continuing at least through the end of April, the Federal Reserve (Fed), the European Central Bank (ECB), and the central banks of Japan, the United Kingdom, Switzerland, and Canada will expand their swap operations, which central banks use to exchange foreign currency with one another. The goal of the action is to increase the dollar’s liquidity for central banks outside of the US.


According to reports, the central banks decided to go from weekly to daily seven-day dollar currency swaps. The swaps have been in use for a while; in the past, they had weekly maturities.


How does it work? Dollars are lent by the Fed to foreign central banks. The Fed swaps the currencies back at the initial rate at the end of the term while also collecting interest. It’s important to note that the announcement follows UBS’s announcement of its alleged “takeover” (also known as bailout) of Credit Suisse by a few hours.


Why It’s Positive For Bitcoin?


The new swap lines are “another mechanism to bailout non-US banks that isn’t visible to the general person,” according to BitMEX creator Arthur Hayes. He claims it is politically risky for the Fed to support foreign banks when numerous tiny US banks require assistance.


According to a recent WSJ study, 186 banks are subject to the same vulnerabilities as Silicon Valley Bank. The Fed cannot permit foreign banks to dump their government bonds into a liquid market and cause the situation to worsen at the same time.


Hayes suggests switching lines as a fix. Major central banks like the ECB receive USD liquidity from the Fed, and EU banks are permitted to provide the ECB with US treasuries at par. This makes it possible for the ECB to provide the banks with US dollars, enabling them to manage any withdrawals of USD deposits.


Because no treasuries are really sold, the US treasuries market is stable as a result. Every profit or loss is absorbed by the central bank, which has an endless capacity for loss, as shown by the balance sheet of the ECB.

The price of bitcoin is currently exhibiting an extraordinarily strong upward trend in response to the latest news. The hourly rise is still there, as can be seen in the 1-hour chart below. Bitcoin was worth $28,160 at the time of publication.



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