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Fed’s $2 Trillion Liquidity Will Reverse the Impact of Quantitative Tightening: JPMorgan

2 mins
Updated by Geraint Price
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In Brief

  • Fed is expected to inject $2 trillion into the US banking system.
  • According to a JP Morgan strategist, it will reverse the impact of the tightening.
  • Will Bitcoin hit $50,000?
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According to a JPMorgan strategist, the Federal Reserve (Fed) might inject $2 trillion liquidity into the market. So the big question is what will be the impact on Bitcoin?

JPMorgan strategist Nikolaos Panigirtzoglou believes that the Fed might inject $2 trillion of funds into the U.S. banking system to ease the liquidity crunch. This is due to the collapse of Silvergate, Silicon Valley, and Signature bank in the last week.

Fed Liquidity Injection

According to Bloomberg, Panigirtzoglou wrote, “The Bank Term Funding Program should be able to inject enough reserves into the banking system to reduce reserve scarcity and reverse the tightening that has taken place over the past year.”

The Fed increased interest rates by 25 basis points in March 2022 for the first time since 2008. Since then, the Fed has been in an aggressive quantitative tightening mode. And the price of Bitcoin is down more than 42% from March 2022.

Bitcoin chart from TradingView
BTC/USD, Coinbase. Source: TradingView

Will Bitcoin Push to $50,000?

When asked about the impact of the $2 trillion liquidity injection, Gaurav Dahake, the CEO of crypto exchange Bitbns, told BeInCrypto, “This is going to be net positive.”

But, he says, “It could get neutralized by the higher rates. It is not a zero-interest scenario right now. There is an FOMC meeting in March, so if it is coupled with no rate hike, then of course, it is going to be a massive push. If rate hikes continue, it will probably not have an extremely positive effect, but it would still be positive.”

Dahake adds, “Over time, it pushes Bitcoin over $50,000, and Bitcoin halving is about a year away now.”

Flight to Crypto Caused by Unease

Robert Quartly-Janeiro, the Chief Strategy Officer of Bitrue told BeInCrypto, “Although the Fed has set aside $2 trillion for the bank liquidity facility, it is anticipated that the facility won’t be fully used by banks, especially the big five. If it is, and the Bank of America looks under some pressure, then market volatility could be sizeable.

“Whilst it shows the lengths to which the Fed is willing to go on one hand to ensure banks are stable through some very targeted QE, the risks of quantitative tightening remain as this new policy enables the Fed to carry on rising rates to deal with inflation.

“As for the impact of the program, it will be telling to see if a risk on or risk of environment ensues – in essence, do markets just rise with the new capital sloshing in the system? The flight towards crypto and Bitcoin seen in recent days is arguably a reaction to increasing unease about the U.S. monetary system.”

There is a 26.2% probability of no interest rate hike at the next Federal Open Market Committee (FOMC) meeting, according to analysts.

Probability of next interest rate hike from CME Group. JPMorgan strategist Nikolaos Panigirtzoglou
Source: CME Group

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In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content.

Harsh Notariya
Harsh started investing in crypto during the 2021 bull market. He took the opportunity of the market crash in May to learn more about Bitcoin and blockchain technology. Since...