In a story that is becoming familiar to crypto bulls, prices slipped sharply on Thursday even as gold and silver once hit new record highs.
Bitcoin has fallen about 2% in the past hour to $108,800, now mostly given its bounce from Friday’s crash. Action across the rest of crypto shows even steeper declines, with ether , and Solana Among sports around 3% dips in the last sixty minutes.
Precious metals, however, continued to bid well, with gold up another 2% to a new record just below $4,300 an ounce. Silver was ahead 3.6% and also at a new record.
What gives?
Wonder what keeps bitcoin going and other major tokens under pressure after last week’s necessary flush in excess leverage?
The likely catalyst is tight liquidity in the financial system, which seems to be wearing down investor risk appetite.
The continued tightening was evident from the spread between the safe overnight financing rate (SOFR) and the effective federal funds rate (EFFR), which increased to 0.19 from 0.02 in the week, reaching the highest since December 2024, according to data source tradingview.
SOFR represents the cost of borrowing cash overnight using US Treasury securities as collateral in the repo market. Lenders are typically banks, broker-dealers, asset managers, money market funds, and insurance companies. SOFR is considered a virtually risk-free, safe 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 uncollateralized, unsecured interbank lending rate, influenced primarily by the monetary policy of the Federal Reserve.
When the SOFR rises above the EFFR, it indicates that lenders are demanding a higher return even for safe borrowing backed by US Treasury Securities. This situation implies tight liquidity conditions and makes borrowing more expensive in the short term.
The latest spike in the spread could be capping gains in BTC, which is considered a pure play by many.
Note that the spread is still lower than the high of 2.95 observed during the 2019 repo crisis.
That said, other signs of funding stress are also present. For example, on Wednesday, banks drew $ 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 a liquid backstop during potential funding shortfalls by extending twice-daily overnight cash loans against US treasuries.
All these signs of tight liquidity have sparked hopes across social media that central banks may step in to ease the pressure, potentially recharging the BTC Bulls engines for a fresh rally to new highs. Whether it plays out as the Bulls expect remains to be seen.
