Bitcoin back above $27,600, US banking crisis far from over

Yesterday’s interest rate decision by the US central bank (Fed) and the subsequent press conference by Chairman Jerome Powell was met with a very bearish reaction from traditional financial markets, as well as Bitcoin and crypto. The Bitcoin price briefly reached $29,000 before falling as low as $26,600.

However, the question arises, what has changed with the bull case for Bitcoin anyway? The US banking sector continues to face unresolved issues, while Fed Chairman Powell and US Treasury Secretary Janet Yellen sent conflicting signals.

Bitcoin is waiting for the next bank bailout

The Fed voted unanimously to raise the federal funds rate by 25 basis points (bps). Not a single voting member of the Fed wanted to pause or cut interest rates.

During the press conference, Powell emphasized that additional increases “may be appropriate” and will be decided “meeting by meeting” based on available data. Despite a collapse of the regional banking system, he said the Fed is not concerned – but these comments do not reflect reality.

Just two weeks ago, the Fed was convinced that interest rates had to rise faster. The basis was an interest rate increase of 50 basis points. If the banking system is as “sound” as the Fed claims, why didn’t it raise by 50 basis points? Because, as he also noted, the current banking crisis corresponds to an increase in interest rates due to the credit crisis.

It is also interesting that Powell and Yellen spoke at exactly the same time. As the Fed raised interest rates, Yellen said the Federal Deposit Insurance Corporation (FDIC) will not guarantee all deposits, while the day before she had said she would consider guaranteeing all deposits.

The Fed and the US government apparently want a picture showing that the crisis is under control. In reality, they have not yet found a solution for the banks. Meanwhile, Powell sent mixed signals, saying the Fed is determined to support banks but does not expect any rate cuts this year.

Bill Ackman, founder and CEO of Pershing Square Capital Management, described this mess on Twitter. Ackman criticized Yellen for withdrawing implicit support for small banks and depositors yesterday, while making it clear that system-wide deposit insurance is not being considered.

We have gone from implicit support for depositors to Yellen’s explicit statement today that no guarantee is being considered with interest rates now being raised to 5%. 5% is a threshold that makes bank deposits that much less attractive. I would be surprised if deposit outflows don’t accelerate effectively immediately.

According to Ackman, a temporary system-wide deposit guarantee is necessary to stop the bleeding in smaller banks. “The longer the uncertainty lasts, the more permanent the damage to the smaller banks, and the harder it will be to bring customers back,” the renowned hedge fund manager said.

What does this mean for the BTC price?

For the Bitcoin and crypto market, it’s all about digesting the data today. Basically, however, it has come as expected, especially the Fed’s rhetoric, which must guide market expectations.

Meanwhile, market futures are predicting rate cuts of 100 basis points by December, which would mean a total of four rate cuts from June. This is the Fed’s biggest deviation from the market ever.

As analyst Michaël van de Poppe explained, Powell has stated the obvious. “He has to keep raising interest rates, while he wants to add more to the balance sheet to save the banks. Bitcoin is correcting and I think we will go down even more. It’s not a good recipe to go bullish into an FOMC event.”

In light of the ongoing banking crisis, analyst “@tedtalksmacro” has a different recipe for Bitcoin’s success, “We have to wait until the next bank blows up before we can get excited again.” add “The first interesting level on the downside for me is ~25k, otherwise a 30k flip will catch my interest. Patience.”

At press time, the Bitcoin price was at $27,586 after failing to break the $27,700 resistance.

Featured image from iStock, chart from TradingView.com