Bitcoin Climbs Above $29,000 As US Banking Crisis Deepens
Bitcoin price surged above $29,000 and the reason is like poetry. Just hours after US Federal Reserve (Fed) Chairman Jerome Powell assured the public at yesterday’s FOMC meeting that the US banking system is safe and sound, several regional banks have come under heavy pressure again.
Regional banks still under severe pressure
Los Angeles-based PacWest (PACW) was down about 60% in after-hours trading. The regional bank is rumored to be looking for a buyer and considering other strategic options, Bloomberg reported.
When this was announced, the stock plummeted because it is clear to investors that the PACW will either sell at a steep discount or the big banks will let the regional bank collapse and then buy it from the FDIC for pittance. According to Bloomberg, a sale is difficult because “there aren’t many interested buyers.”
Other US regional banks were also caught in the negative current after the FOMC meeting yesterday. Phoenix-based Western Alliance lost about -30% in after-hours trading. Since the beginning of the year, Western Alliance shares have fallen -90%.
Banco Metropolitano (MCB) fell -20%, down -63% year-to-date. Other regional banks in big trouble include Valley National (-15%), HomeStreet (-11%) and Salt Lake City-based Zions (-10%). The total loss in market capitalization in the US banking sector this year surpassed $2.5 trillion yesterday.
“The banking system is safe and sound” – Jerome Powell yesterday… The Fiat Ponzi scheme is collapsing, and they won’t admit it until the end. #Bitcoin https://t.co/yaASpcRNvr
—Jake Simmons (@realJakeSimmons) May 4, 2023
Earlier this week, First Republic Bank (FRC) failed and was sold shortly after to America’s largest bank, JP Morgan Chase. That should have really resolved the acute crisis, as JP Morgan CEO Jamie Dimon stressed on Monday. Powell also emphasized yesterday that the FRC was the “bottom line”.
As a result, the Federal Reserve Board of Governors deemed another rate hike appropriate to continue fighting inflation. It was the tenth consecutive increase. The federal funds rate is now in the range of 5.0 to 5.25 basis points.
For some experts and economists, it is clear that interest rates, which have risen too quickly and too sharply, are at the heart of the problem for many regional banks, as bonds and loans in banks’ portfolios are worth significantly less than their official book value. .
Thus, the fractional banking system is also at the heart of the problem. Depositors are currently uncertain whether their money is still safe at regional banks, especially as the FDIC has yet to declare deposit insurance for all US banks. But the question seems to be how long before the money press is fired again to save the banks.
US TREASURY CONSIDERS DEFECT DEPOSIT INSURANCE ON ALL ACCOUNTS, INCLUDING THOSE OVER $250,000 TO STOP REGIONAL BANKING CRISIS: GASPARINO
— FXHedge (@Fxhedgers) May 3, 2023
Why is Bitcoin bullish today?
Despite an extremely hawkish FOMC press conference by Powell, in which he avoided any clear statement about an interest rate pause in June and also ruled out the possibility of rate cuts before the end of the year (based on the current Fed), Bitcoin has been resurrected since then.
As always, the reasons can only be speculated. However, the current banking crisis and the erosion of confidence in the system is certainly one of the reasons. After all, Bitcoin was created precisely for this case. Furthermore, gold also briefly hit a new all-time high yesterday. Notably, the correlation between Bitcoin and gold is at a 2-year high, as Bitcoinist reported.
On the other hand, expectations are likely a reason as the Fed is likely to change sooner than it says. According to the CME’s FEDWatch tool, more than 95% expect a break in interest rates in June. Furthermore, the market expects two to three rate cuts by the end of the year. The market is calling attention to Powell’s bluff.
At press time, Bitcoin price was at $29,179, up 3.5% since the end of the FOMC meeting.
Featured Image from iStock, chart from TradingView.com