What Does a Surge in US Banking Liquidity Pressure Mean for Bitcoin?

IconCryptoNewsTerminal Staff03 Jul, 2024

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What Does a Surge in US Banking Liquidity Pressure Mean for Bitcoin?

Signs of liquidity pressure are emerging in the U.S. banking market, which could spell trouble for risk assets like Bitcoin (BTC). The Secured Overnight Financing Rate (SOFR), the interest rate fixing system of Wall Street's traditional financial sector, hit 5.4% on July 1, the highest level in six years. This could indicate a lack of liquidity in the market. David Brickell, Global Head of Institutional at Canadian crypto platform FRNT Financial, said, "The situation is reminiscent of the 2019 repo (repurchase agreement) funding exodus, with stress being observed from excessive government debt and U.S. Treasury money issuance. The current financial system cannot digest this much debt without additional liquidity injections from the Fed." If liquidity pressures continue to mount, it could lead to a sell-off in risk assets, including Bitcoin. This is because investors may be forced to sell their risky investments in order to meet margin calls or other financial obligations. It is important to note that the situation is still fluid and it is unclear how it will impact Bitcoin in the long term. However, investors should be aware of the risks and take appropriate steps to protect their portfolios.

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