Bitcoin Soars Above $29,000 M2 Supply Drops To 90-Year Low
Bitcoin price bounced above the crucial $27,800 resistance yesterday in response to the First Republic Bank news and continues its rally above $29,000 today. As was the case after the collapse of Silicon Valley Bank and Silvergate, the news of the bank’s collapse served as a trigger for an upward movement in Bitcoin. And there’s reason to believe that the reasons aren’t going away anytime soon.
Yesterday’s news about First Republic Bank (FRC) came as a surprise: its customers were withdrawing money on a massive scale. Deposits fell 41% in the first quarter, as the bank announced on Monday.
In the fourth quarter of 2022, deposits were still at $176 billion. By the end of March, deposits had fallen to $104 billion, despite the fact that on March 16 other large banks had injected $30 billion into the FRC. Thus, without this injection, deposits would be US$ 74 billion (loss of 58%). According to FOX, regulators are expected to seize the FRC.
The stock market reaction took place on Tuesday, with shares of the 14th largest bank in the United States suffering a sharp drop. “Meanwhile, the Fed/FDIC continues to say that the banking system is ‘strong’. There seems to be a big disconnect here,” observation analysts at The Kobeissi Letter.
Since March 1, the actions of the First Republic, $FRCwere interrupted more than 90 times.
The bank reported that more than $100 billion in deposits were lost in the first quarter of 2023.
Meanwhile, the Fed/FDIC continues to say that the banking system is “strong”.
There seems to be a big disconnect here.
— The Kobeissi Letter (@KobeissiLetter) April 25, 2023
US Banking Crisis Approaches as M2 Dives Deep
And there are other indications that portend even greater problems in the US banking system. The M2 money supply fell -1.2% m/m in March, the steepest decline in 90 years. While the absolute level is still significantly higher than it was pre-COVID, the contraction in the money supply has historically been of the most explosive nature, as Nick Gerli pointed out in a Twitter wire.
The CEO and founder of Reventure Consulting warns that the only other times a comparable contraction has occurred have been on the heels of depressions and major banking crises. Other periods of monetary contraction include the Great Depression of 1929, the Depression of 1921, the Panic of 1893, and the banking crisis of the 1870s. In all cases, there were massive bank failures.
“What’s amazing to me is how NOBODY is paying attention to this. The Fed is sucking money out of the system through QT. Just as long as banks are at the start of a credit crunch. And stock/real estate investors are still “risk on”. Insane,” writes Gerli, who shared the graphic below.
The problem with this monetary contraction is that inflation is far from defeated and companies are in desperate need of cash right now. As Gerli notes, this is a recipe for bankruptcies and mass layoffs, especially given the massive corporate debt bubble – $20 trillion in corporate debt by the end of 2022, double what it was in 2008.
A recession is therefore just a matter of time for Gerli, who is highly critical of the Federal Reserve:
The Fed’s ignorance of these realities is shocking. They rarely, if ever, discuss the money supply. Only interest. But I suspect that will change in the next 3 to 6 months. Because if the money supply keeps contracting, there will be big problems.
History supports the expert’s claims, who see only one hope: banks will be aggressive with lending again in 2023, when the Fed will change sooner than expected, “saving the day”.
What does this mean for Bitcoin?
Long-term predictions are difficult as Bitcoin has never traded in a recessionary environment. However, the current Bitcoin backlash massively strengthens the “digital gold” narrative. Renowned Analyst Ted (@tedtalksmacro) he writes:
Bonds/gold/dollar offer while stocks are offered -> indicative of a flight to safety in TradFi. Bitcoin would normally have been offered in such an environment, but instead it has been put up for bid… The events of 2023 until now (banking crisis + central bank reaction) have done wonders for the digital gold/BTC store of value narrative.
James Choi Analyst see a second reason for the current Bitcoin price surge, liquidity:
The second wave of attacks on regional banks led by the FRC is causing the Fed to inject more and more liquidity into the system. The market is a liquidity junkie and is already pricing it in. Bitcoin is back above 28k. Commodities like Copper, Crude Oil, Natural Gas, Silver all gaining 1%+.
At press time, Bitcoin price was at $29,006.
Featured Image from iStock, chart from TradingView.com