The secured overnight financing rate (SOFR), which measures the cost of borrowing overnight using U.S. Treasury securities as collateral, has surged to a six-year high. This indicates liquidity stress in the U.S. banking system, a concerning trend for markets in the short term. David Brickell, head of international distribution at FRNT Financial, believes this stress could weigh on risky assets like Bitcoin (BTC). This spike in SOFR mirrors the situation in 2019, where the Fed intervened with liquidity injections after a similar surge in repo funding rates. Brickell suggests the Fed might need to restart liquidity injections through quantitative easing to address the strain caused by excessive government debt and Treasury bill issuance. This potential intervention could benefit Bitcoin, similar to its role in the coronavirus-induced crash of March 2020. However, Bitcoin's recent 13% decline in the past 30 days, decoupling from the Nasdaq rally, suggests tough times ahead for stocks and potentially for Bitcoin as well.
Liquidity Stress in US Banking System: What Does It Mean for Bitcoin?
Summary:
The Secured Overnight Financing Rate (SOFR) has surged to a six-year high, indicating liquidity stress in the U.S. banking system.
This liquidity stress could weigh on risky assets like Bitcoin, similar to the situation in 2019 when the Fed intervened with liquidity injections.
David Brickell, head of international distribution at FRNT Financial, suggests the Fed might need to restart liquidity injections through quantitative easing to address the strain caused by excessive government debt.
This potential Fed intervention could benefit Bitcoin, as it did during the coronavirus-induced crash of March 2020.
Bitcoin's recent 13% decline in the past 30 days, decoupling from the Nasdaq rally, suggests tough times ahead for stocks and potentially for Bitcoin as well.
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