Kashkari from Fed suggests liquidity support – $10,000 of Bitcoin is back on the table?

Minneapolis Federal Reserve President Neil Kashkari tackled the issue of rising Treasury yields on April 11, suggesting that changes in investor sentiment could indicate a departure from U.S. government debt. Kashkari emphasized that the Federal Reserve has the tools to provide more liquidity when needed.

Emphasizing the importance of maintaining a strong commitment to reduce inflation, Kashkari’s statements point to a potential turning point for Bitcoin (BTC) investors amid growing economic uncertainty.

The current 10-year 4.5% US government bonds is not uncommon. Even if we approach the last seen level of 5% in October 2023, this does not necessarily mean that investors have lost confidence in the Treasury’s ability to meet their debts. For example, gold prices had exceeded $2,000 in late November 2023, but yields have already fallen to 4.5%.

Does the Fed inject liquidity? Is this positive for Bitcoin?

The Treasury rise often shows concerns about inflation and economic uncertainty. This is extremely important for Bitcoin traders. This is because higher yields tend to make fixed income investments more attractive. However, if these rising yields are perceived as signs of deeper systemic problems, such as eroding confidence in government fiscal policies, investors may resort to alternative hedges like Bitcoin.

The Bitcoin trajectory depends heavily on the response of the Federal Reserve. Liquidity injection strategies typically allow higher yields while increasing the price of Bitcoin, which can increase borrowing costs for businesses and consumers, slow economic growth, and can have a negative impact on Bitcoin prices in the short term.

One strategy the Federal Reserve can use is to buy the Long-Term Treasury Department to reduce yields. The Fed may simultaneously reverse repos to offset the added liquidity through bond purchases. This could result in overnight borrowing of cash from the bank in exchange for securities.

Weak US dollars and bank risks could pound the price of Bitcoin

This approach may temporarily stabilize yields, but aggressive bond purchases can indicate despair at the rate of control. Such signals can raise concerns about the Fed’s ability to effectively manage inflation. These concerns can often weaken confidence in the dollar’s purchasing power and push investors into Bitcoin as a hedge.

Another potential strategy involves giving banks immediate liquidity and reducing the need to sell long-term bonds to provide low interest rate loans through discount windows. To offset this liquidity injection, the Fed may impose stricter collateral requirements, such as valuing bonds pledged at 90% of the market price.

This alternative approach restricts banks’ access to cash and ensures that borrowed funds remain associated with secured loans. However, if the collateral requirements are too limited, banks may struggle to obtain adequate liquidity, even if they are able to take advantage of discount window loans.

Related: Bitcoiner’s “bullying impulses” on recession may be premature: 10x research

It’s too early to predict which path the Fed will take, but given the recent Treasury yield of 4.5% on the US dollar, investors may not place full confidence in the Fed’s actions. Instead, they may look to safe haven assets like gold or bitcoin for protection.

Ultimately, rather than focusing solely on the US Dollar Index (DXY) or the US 10-year Treasury yield, traders need to pay close attention to systematic risks in financial markets and the spread of corporate bonds. As these metrics rise, trust in the traditional financial system will weaken, and Bitcoin may set the stage to regain its psychological $100,000 price level.

This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.