Federal Reserve balance sheet grows again, what does this mean for Bitcoin?

The balance sheet of the US Federal Reserve, the world’s most important central bank, has increased by $393 billion in the past two weeks. Despite the high inflation, the Federal Reserve had to intervene several times in recent weeks to prevent failing banks from dragging the rest of the financial system into the abyss. Is this the catalyst Bitcoin needs to start another bull run?

Balance sheet of the Federal Reserve. Source: FRED

Back to start

In recent months, the Federal Reserve has been trying to shrink its balance sheet in order to combat skyrocketing inflation in the United States. That worked well, until the problems within the banking sector started a little less than two weeks ago.

Since then, the Federal Reserve’s balance sheet has skyrocketed and much of its progress has been completely lost. With the increase in the balance sheet, around four months of tightening has been erased.

We can’t quite agree with this though money printer speaking, because the growth of the balance sheet is different from normal. In this case, banks with liquidity problems deposit assets as collateral with the Federal Reserve, which they then temporarily receive US dollars in return.

The idea is that the banks in question will eventually return these sums of money to the Federal Reserve, after which they will get their assets back. Ultimately, however, it remains to be seen whether these plans will actually work out. The past has proven that workarounds are often not so temporary at all in the financial world.

Good for Bitcoin

What we do know for sure is that the banking turmoil and the growth of the Federal Reserve balance sheet act as a catalyst for the Bitcoin price. It is certainly too early to speak of a new bull market at this point, but more and more investors are seduced by the stability and security that Bitcoin can offer at times like this.

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Once again it becomes clear with the problems at the banks that Bitcoin is a relatively safe option to install your capital. Where at the banks you just have to hope that you can always reach the money you place there when you need it.

In that regard, the minor banking crisis is once again pure advertising for Bitcoin and shows yet another reason why Satoshi Nakamoto launched the network in 2009: the traditional financial system is always fragile in the long run and Bitcoin is not.

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