As of March 22, the Fed's balance sheet surged by nearly $94.5 billion — a $297 billion increase from the last week when the banking crisis started.

New QE hopes boost Bitcoin price

Overall, the U.S. central bank's liabilities increased by $393 billion in the last two weeks to $8.734 trillion. That is closer to the all-time high of $8.95 trillion a year ago when the Fed started its quantitative tightening program and reduced its assets by $600 billion.

But the Fed did not use new dollar reserves to purchase long-term treasuries. Instead, the central bank dropped its U.S. Treasury holdings by $3.5 billion to $7.937 trillion, suggesting that quantitative tightening is still in place to curb inflation.

On the other hand, Fed's balance sheet grew because it dispatched short-term loans to the ailing banking sector.

Notably, as of March 22, the Fed slashed the usage of its "discount window," which helps commercial banks manage short-term liquidity needs, by $42 billion. Instead, it allocated the same $42 billion to its brand new Bank Term Funding Program.

The Fed's tightening policy and lending facilities to regional and offshore banks risk drying up cash liquidity. This may boost the dollar's valuation versus other top foreign currencies, which, in turn, could push Bitcoin's price lower in the short term.

Interestingly, the U.S. dollar index has gained 1.5% since the Fed's balance sheet update.

Has the banking crisis peaked?

The ongoing credit crisis may not have peaked despite Fed's $393 billion emergency lending to banks, however, if one considers Janet Yellen's blurred outlook on depositors' insurance.

On March 21, the U.S. Treasury Secretary confirmed protecting uninsured depositors over $250,000 "if smaller institutions suffer deposit runs" such as those witnessed in Silicon Valley Bank and Signature Bank. 

But Yellen did a U-turn the next day in her statements to the Senate that she had not considered “blanket insurance or guarantees of deposits.” The bank stocks tanked in response to her statement, resulting in another U-turn.