In an all-too-familiar story for crypto bulls, prices fell sharply on Thursday, even as gold and silver hit new record highs.
Bitcoin is down about 2% in the past hour to $108,800, now having mostly given up its run from Friday’s crash. The action across the rest of crypto shows even steeper declines, with ether , and solana among those having a drop of about 3% over the last sixty minutes.
Precious metals, however, remain extremely good bets, with gold higher by another 2% to a new record just below $4,300 per ounce. ounces. Silver is ahead by 3.6% and also at a new record.
What gives?
Wonder what holds bitcoin and other major tokens under pressure after last week’s much-needed flush out of excessive leverage?
The likely catalyst is tight liquidity in the financial system, which appears to dampen investors’ risk appetite.
The ongoing tightening is evident in the spread between the secured overnight funds rate (SOFR) and the effective federal funds rate (EFFR), which widened to 0.19 from 0.02 in one week, hitting the highest since December 2024, according to data source TradingView.
The SOFR represents the cost of borrowing cash overnight using US Treasuries as collateral in the repo market. The borrowers are typically banks, brokers, asset managers, money market funds and insurance companies. SOFR is considered almost risk-free, hedged rate based on actual transaction data.
Meanwhile, the EFFR indicates the weighted average interest rate at which banks lend excess reserves to other banks overnight in the federal funds market. It is an unsecured, unsecured interbank lending rate that is primarily influenced by the Federal Reserve’s monetary policy.
When the SOFR rises above the EFFR, it indicates that lenders are demanding a higher rate of return even for secured loans backed by US Treasuries. This situation signals tight liquidity conditions and makes it more expensive to borrow in the short term.
The recent increase in the spread could be a cap on gains in BTC, which is viewed by many as a pure liquidity play.
Note that the spread is still significantly lower than the high of 2.95 observed during the 2019 repo crisis.
That said, there are other signs of funding stress as well. For example, banks on Wednesday drew $6.75 billion from the standing repo facility (SRF), the highest amount since the end of the coronavirus pandemic, excluding quarterly expiry periods.
Introduced in 2021, the SRF provides a liquidity backstop during potential funding shortfalls by extending twice-daily overnight cash loans against US Treasuries.
All these signs of liquidity tightening have raised hopes across crypto-social media that central banks may soon step in to ease the pressure, potentially recharging BTC bulls’ engines for a fresh rally to new highs. Whether it will be as the bulls expect remains to be seen.
