Bitcoin has faced a challenging few weeks, retreating sharply from its record highs and weighing on the broader market, including ether , , solana and others.
However, there’s a compelling reason to expect the cryptocurrency to stay above the pivotal $100,000 level and rally this week, and it’s tied to a positive shift in the U.S. financial system that signals potential for renewed investor risk-taking.
At the heart of the story is the spread between the SOFR and EFFR, which gauges dollar liquidity conditions in the U.S. banking sector. SOFR, the Secured Overnight Financing Rate, is the overnight interest rate that banks pay to borrow cash using Treasuries as collateral. The Effective Federal Funds Rate (EFFR) is the rate at which banks led reserves to each other overnight without collateral.
Usually, this spread hovers in a narrow range, but late last month it surged to the highest since 2019, signaling stress and liquidity tightening in the financial system. The result? the dollar index, which tracks the greenback’s value against major fiat currencies, rose and bitcoin fell sharply, breaching the $100,000 level at one point.
But over the last couple of days, the SOFR-EFFR spread has sharply tanked to 0.05 from 0.35, erasing that spike. This reversal hints at easing financial conditions—the fear premium has faded, and liquidity is normalizing.
All else being equal, tightening of this spread signals looser financial conditions, favorable for risk assets like bitcoin. And guess what, BTC is on the rise as of writing, trading above $103,000, representing a 1.6% gain on a 24-hour basis, according to CoinDesk data. ETH, XRP, SOL, BNB have gained 1.5% to 2.5% following BTC’s lead.
SRF borrowing slides, DXY rally stalls
Other key indicators also point to easing liquidity stress. For instance, banks’ borrowing from the Federal Reserve’s standing repo facility (SRF), a key liquidity management tool, has dropped back to zero after peaking at a record $50 billion earlier this month, according to data from ING. Banks had borrowed billions through the SRF as a response to temporary funding pressures.
Concurrently, the dollar index’s rally has softened at resistance from the August high of 100.25, causing the upward momentum to stall. A renewed sell-off in the DXY could bode well for BTC, which is seen as a hedge against dollar debasement and a proxy for inflation protection.
All these factors combine to create a compelling case for bitcoin and the wider crypto market to rally in the coming week.
Key risks
Keep an eye on flows into the U.S.-listed spot ETFs, as they will need to show strength following nearly $2.8 billion in outflows over the past four weeks.
A breakout in the DXY above 100.25 could dent BTC’s bullish prospects.