The Fed’s BTFP Program Has Officially Ended – Will Bitcoin’s Price Take Another Hurt?

The completion of the Bank Time Funding Program (BTFP) on March 11 presents a critical moment for various financial markets, including the cryptocurrency sector and, by extension, the price of Bitcoin (BTC).

Bitcoin, the new “gold”

Established as a financial instrument to support liquidity and stability in banking institutions, BTFP plays a vital role in the wider financial ecosystem. Three days later, the program ended on March 11, as the price of BTC reached a new high.

However, market participants and observers are now closely monitoring the potential impact of BTFP on asset prices, especially in the volatile crypto market.

The BTFP aims to strengthen the confidence and liquidity of banks by lending against high-quality securities, ensuring that they can meet the needs of depositors without resorting to asset sales at depressed prices.

This mechanism indirectly supports the broader financial markets by maintaining a level of liquidity and stability. However, with the end, there may be changes in market dynamics, including the potential for increased volatility in traditional financial markets.

Bitcoin, often referred to as “digital gold” and a hedge against traditional financial market volatility, could see different impacts from the BTFP outage.

One possible outcome is an increase in the value of Bitcoin, driven by investors looking for alternative stores amid volatility in traditional markets. This flight to safety could boost Bitcoin's appeal, strengthening its status as a viable alternative investment.

Jonathan Solomon, founder and CEO of ARIA Algorithm Ratings, said the ongoing fragility in the banking system highlighted by BTFP could reinforce Bitcoin's value and narrative as a safe haven asset, just like the 2023 banking crisis. Investment company. He told Cointelegraph.

With the stability of the banking sector still in question and the conclusion of the BTFP, there is a perceived risk to the banking sector which, in turn, will have a positive impact on Bitcoin's appeal. Considering the availability of the Bitcoin Spot ETF, which did not exist in March 2023, Bitcoin's potential to attract more investors is greater now.

Is Tight Liquidity Bad for Bitcoin Price?

Conversely, the end of the BTFP could lead to tightening liquidity conditions in traditional markets, prompting investors to liquidate risky assets, including cryptocurrencies, to cover positions in traditional markets.

As market participants adjust to the new liquidity environment, this situation may put downward pressure on Bitcoin's price, at least in the short term.

Moreover, the end of BTFP may threaten investor sentiment and appetite in financial markets. In a landscape of perceived diminishing liquidity, risk aversion is likely to increase, reducing appetite for highly volatile assets such as Bitcoin. This sentiment-driven factor may play a major role in Bitcoin's post-BTFP price movements.

Terence Kwok, founder of the Humane Institute, said tighter liquidity conditions could affect investor appetite for digital assets like Bitcoin. Kwok told Cointelegraph:

“Investors may shift their investments to safer assets in situations of increased market risk or liquidity shortages, which could negatively impact the price of Bitcoin in the short term.”

However, the end of BTFP is unlikely to have a direct, short-term impact on Bitcoin's price, and any indirect effects could take months to materialize, said Matteo Greco, research analyst at digital asset investment firm Phoenicia International. Greco told Cointelegraph:

The conclusion of the BTFP may affect the banking system, particularly the small banks in the banking sector and consequently the macroeconomic landscape. This may indirectly affect riskier assets such as BTC, but the magnitude and timing of such an effect are uncertain.

It fell more than 12% last week to $63,124 at 1:33pm UTC amid net negative flows for Bitcoin ETFs. Apex Alpha Academy co-founder Avhit Bij said this trend correction is consistent with Bitcoin's historical pre-halving price patterns and broader financial markets. He told Cointelegraph.

“The closure of BTFP will weaken liquidity in the Sulu and increase the rate of return from profits. However, the long view is that BTC is the asset of choice to hedge against fiat, and consider that institutions and retail will mainly look at BTC. We will overcome the short-term waves that may come.”

In a March 19 X (formerly Twitter) post, Bitcoin analyst Rect Capital has officially entered a historic pre-halving recovery zone, in line with the 2020 20% correction and the 2016 40% correction.

“Currently, $BTC is about 28 days away from Halving and has pulled back a total of -14% since last week.”

It is important to consider the broader macroeconomic context, including interest rates, inflation and geopolitical events, which will continue to influence the Bitcoin and cryptocurrency markets. The interplay between these factors and the end of the BTFP can create complex market dynamics, making it difficult to predict Bitcoin's price direction with certainty.

Therefore, while the end of the Bank Term Funding Program marks an important time for financial markets, its direct impact on the price of Bitcoin is multifaceted and uncertain. Factors such as market liquidity, investor sentiment and broader economic conditions will all play a role in shaping the price of BTC in a post-BTFP world.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.