The US Federal Reserve (FED) announced at night that it has joined hands with other major central banks to ensure the stable flow of the US dollar, the dominant reserve currency in the global financial system. After the development, crypto investors wondered how the Bitcoin price (BTC) would move. Here are the details…
FED announced together with other central banks: Clearing line will be increased
The Fed said Monday it will increase the frequency of weekly dollar liquidity swap lines with the European Central Bank (ECB), Bank of Japan (BoJ), Bank of England (BoE), Bank of Canada (BoC) and Swiss National Bank (SNB). Dollar swap lines allow foreign central banks to borrow US dollars, while shielding the Fed from risks of a downside. Central banks will reduce the frequency of US dollar operations to daily from 7 days. Daily operations will begin today, the first day of the new week. Although there is no exact date for its end, it will run until the end of April at a minimum.
The move aims to calm exchange rate volatility and enable investors and businesses around the world to avoid pressures in the supply of credit. This development came just after the bankruptcy of three banks in the USA and the takeover of the troubled Swiss credit institution Suisse by UBS and Swiss National Bank, as we have also reported as Kriptokoin.com.
It illustrates growing financial stability concerns among policymakers and questions the Fed’s ability to continue raising interest rates. The central bank has increased the cost of borrowing by 450 basis points since March 2022, with asset markets including cryptocurrencies churning last year. Meanwhile, it is worth noting that the FED last reduced the frequency of US dollar operations during the epidemic in 2020.
What does this development mean for Bitcoin?
In general, the Fed’s support for global dollar liquidity reduces the risk of a worldwide run into cash. Investors are selling everything, including Bitcoin and other cryptocurrencies, and cashing in, mainly in US dollars. During turmoil, investors often sell risky assets and park their money for cash, preferably in US dollars. This puts stress on the financial system by raising the cost of acquiring US dollars.
In other words, the increased frequency of swap lines paved the way for an unabated rise in risk assets, including Bitcoin. The leading cryptocurrency by market cap, Bitcoin is largely viewed as a hedge against the banking system. Because BTC reached a nine-month high of $ 29,000 at night. On a monthly basis, his earnings increased to 25 percent.
Dollar swaps have pointed downwards for the dollar in the past. In general, Bitcoin and risk assets tend to move in the opposite direction of the dollar. The latest global cash surge, observed during the coronavirus-induced crash in March 2020, saw the dollar index rise above 100 and Bitcoin dive over 50 percent. But we all know what happened next: Bitcoin hit its highest levels in a year. Also, the dollar’s move to the downside could be a positive sign for BTC.
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