Bitcoin Falters As President Biden Admits US Banking Sector Is Weak
US President Joe Biden speaking at National Small Business Week on May 1, admitted that the US banking system is fragile. In a recent statement, the Head of State revealed that the Government will institute measures to ensure that its financial system remains “solid and safe”.
Despite Biden’s comments, Bitcoin and most cryptocurrencies remain bearish. Bitcoin is down 4% over the past 24 hours and around 10% from its April 2023 highs, trading at $28,100.
Collapsing banks in the United States, President Biden’s assurance
The president’s comments follow the collapse of First Republic Bank, the third major bank to fail in less than two months.
The bank failure caused the stock price to crash towards the end of April 2023, when Bitcoin prices rose, reaching $30,000 on April 26th. At that point, the cryptocurrency rebounded after troubling losses in mid-April 2023.
On April 26th, First Republic Bank stock fell as much as 50% as its trading was halted several times on the New York Stock Exchange.
The San Francisco-based bank revealed which was losing deposits, losing more than $72 billion when clients moved their funds elsewhere in the first quarter of 2023.
The First Republic Bank crisis and bank run was further amplified when two banks, Silicon Valley Bank (SVB) and Signature Bank, came under attack at the same time that cracks began to appear in the US banking system.
SVB has seen a deluge of withdrawal requests in a run on banks where services were temporarily disrupted in the second week of March. Around that time, First Republic Bank also said it received a $30 billion capital injection from 11 creditors.
First Republic Bank assets were acquired by the Federal Deposit Insurance Corporation (FDIC) and later sold to JP Morgan Chase in a $10.6 billion deal.
It is against this background, and with more banks in the United States appearing to face a liquidity crisis, that Biden assures depositors that the government will step in to calm the waters and stabilize the sector. Specifically, Biden he said the government would protect depositors, including small businesses that need to process workers’ payroll. The Head of State added:
Let me be very clear, all depositors are being protected. Shareholders are losing their investments. And, critically, the taxpayers are not the ones on the hook. The (government’s) actions will ensure that the banking system is safe and sound, and that includes protecting small businesses across the country that need to make payroll for workers.
Bitcoin unresponsive and pulls back from April highs
Bitcoin price action is increasingly in sync with the overall macroeconomic environment, especially in reaction to the state of the US banking system.
For example, when the SVB collapsed in mid-March, Bitcoin prices surged, rising 58% from their March 2023 lows before peaking at $31,000.
Prices are currently lower, retreating from peaks in April, and do not respond to the promise of US intervention to make the banking sector more robust. However, any threat to the legacy financial system must support a rise in cryptocurrency in the longer term.
Canva resource image, TradingView chart