Analyst warns Fed’s decision to end BTFP could trigger financial crisis

Bitmex founder and Maelstrom chief investment officer Arthur Hayes has warned that the Federal Reserve ending its Bank Term Funding Program (BTFP) would trigger a financial crisis.

“The cessation of the BTFP [bank term funding program] will cause a mini-financial crisis and force the Fed to stop ‘Talkin’’ and start ‘Yellen’ with a rate cut, tapering of QT [quantitative tightening], and/or a resumption of money printing via quantitative easing (QE),” said Hayes, as quoted by Forbes.

This week, the Fed officially announced that it would end its $160 billion BTFP on March 11. This program, approved by Treasury Secretary Janet Yellen last year during the U.S. banking crisis, was designed to prevent a potential full-blown banking meltdown in March 2023.

The Fed created the BFTP to ensure that banks have enough liquidity to meet the demands of businesses and households, especially during situations with a high number of withdrawals in a short period.

The banking crisis is believed to have originated from the Fed’s quick succession of interest rate hikes. This heightened pressure on bank balance sheets, which had been stretched during the loose monetary policies of the Covid era.

Hayes forecasts that banks will face ongoing challenges until rates are lowered, emphasizing that these banks cannot survive without government support from the BTFP.

Bitcoin to drop below $35k

In his recent blog post, Hayes also anticipates Bitcoin dropping below $35,000 due to global economic challenges.

“A 30% correction from the ETF approval high of $48,000 is $33,600. Therefore, I believe Bitcoin forms support between $30,0000 to $35,000. That is why I purchased 29 March 2024 $35,000 strike puts,” Hayes said.

He voiced his concerns about liquidity, the BTFP and geopolitical risks, suggesting that the recent 20 percent dip in Bitcoin’s price may be the beginning of larger challenges.

Bitcoin reached $38,500 on January 23, marking its lowest point since the beginning of December. It then soon bounced back, rising about $1,700, according to data from Cointelegraph Markets Pro and TradingView.

The BTFP renewal decision is set for March 12, and Hayes expects Bitcoin’s price to keep dropping until then. Despite ongoing financial challenges for banks, Hayes believes this trend will persist. Resolving these issues, including liquidity concerns, depends on Secretary Yellen’s actions.

“That is why, to get the cuts, QT taper, and the possible resumption of QE the market believes is already in the bag come March, we first need a few banks to fail when the BTFP is not renewed,” Hayes said.

Bitcoin to reach $70k by the end of 2024

Earlier in July 2023, Hayes shared his long-term prediction for Bitcoin prices, saying that factors such as a decreasing interest rate, a crypto halving event and the launch of spot Bitcoin ETFs would drive Bitcoin to reach $70,000 by the end of 2024 before surging to between $750,000 and $1 million in 2026.

Meanwhile, analytics firm Messari predicts that Bitcoin will reach $600,000 by the end of the year, while VanEck anticipates a modest $275,000 and ETC Group forecasts $100,000.

In its latest report titled “Crypto Theses for 2024,” Messari highlights Bitcoin’s resilience, demonstrating its ability to withstand regulatory challenges and uncertainties.

Messari highlights challenges facing Bitcoin, including regulatory scrutiny, environmental concerns related to mining and price volatility. The report also highlights the ongoing shift towards digital cash.

“As the world transitions toward digital assets and a cashless society, bitcoin is likely to capture demand from those who want assets that are difficult to surveil and seize,” the report reads.

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