In a story that is becoming all too familiar to cryptocurrency bulls, prices are falling sharply on Thursday even as gold and silver once hit new all-time highs.
bitcoin has fallen about 2% in the past hour to $108,800, having largely abandoned its bounce since Friday’s drop. Action in the rest of the cryptocurrencies shows even steeper drops, with ether , and sunny among those that present drops of approximately 3% in the last sixty minutes.
Precious metals, however, remain very well supplied, with gold rising another 2% to a new record just below $4,300 an ounce. Silver advances 3.6% and also reaches a new record.
Is left over?
Wondering what keeps Bitcoin going and other major tokens under pressure after last week’s much-needed exit from overleverage?
The likely catalyst is a shortage of liquidity in the financial system, which appears to be moderating investors’ risk appetite.
The current tightening is evident in the spread between the secured overnight funding rate (SOFR) and the effective federal funds rate (EFFR), which has increased from 0.02 to 0.19 in a week, reaching the highest level since December 2024, according to data source TradingView.
SOFR represents the cost of borrowing cash overnight using U.S. Treasury securities as collateral in the repo market. Borrowers are typically banks, stockbrokers, asset managers, money market funds, and insurance companies. SOFR is considered a safe and almost risk-free rate based on real transaction data.
Meanwhile, 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 and unsecured interbank lending rate, primarily influenced by the monetary policy of the Federal Reserve.
When SOFR exceeds EFFR, it indicates that lenders demand a higher yield even for collateralized loans backed by U.S. Treasury securities. This situation indicates tight liquidity conditions and makes short-term debt more expensive.
The latest increase in the spread could be limiting gains in BTC, which many consider a pure liquidity play.
Note that the spread is still considerably lower than the high of 2.95 seen during the 2019 repo crisis.
That said, other signs of financial stress are also present. For example, on Wednesday, banks withdrew $6.75 billion from the standing repo facility (SRF), the highest amount since the end of the coronavirus pandemic, excluding quarter-end periods.
The SRF, introduced in 2021, provides liquidity support during potential funding shortfalls by providing twice-daily overnight cash loans against U.S. Treasury bonds.
All of these signs of liquidity tightening have raised hopes on crypto social media that central banks could soon step in to ease the pressure, potentially recharging the engines of BTC bulls for a fresh rally to new highs. It remains to be seen if that plays out as the bulls expect.
