Bitcoin climbs above $29,000 as US banking crisis deepens
Kyiv, Ukraine – September 22, 2017: Studio shot of Golden Bitcoins coins and dollar bills. Bitcoin was invented by Satoshi Nakamoto in 2008 as a digital form of money”nThis is a close-up of several gold-plated bitcoins symbolizing the bitcoin market, modern technology, finance, internet, commerce, etc. “nBitcoin introduced in 2009 transnational payment system in the form of virtual money, to be used in the cryptographic techniques (cryptocurrency).
Bitcoin price has climbed back above $29,000 and the reason is like poetry. Just hours after US Federal Reserve Chairman Jerome Powell assured the public at yesterday’s FOMC meeting that the US banking system is safe and sound, several regional banks have again come under severe pressure.
Regional banks still under severe pressure
Los Angeles-based PacWest ( PACW ) plunged 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 fell because it is clear to investors that either PACW will be sold at a massive discount or big banks will let the regional bank collapse and then buy it from the FDIC for a pittance. According to Bloomberg, a sale is difficult because “there aren’t many interested buyers.”
Other regional US banks were also caught in the drawdown yesterday after the FOMC meeting. Phoenix-based Western Alliance lost about -30% in after-hours trading. Since the beginning of the year, Western Alliance’s shares have fallen -90%.
Metropolitan Bank (MCB) plunged -20%, down -63% year to date. Other struggling regional banks include Valley National (-15%), HomeStreet (-11%) and Salt Lake City-based Zions (-10%). The total loss in market value in the US banking sector this year exceeded $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
— Jake Simmons (@realJakeSimmons) 4 May 2023
Just earlier this week, First Republic Bank (FRC) went bankrupt and shortly afterwards was sold to the US’s largest bank, JP Morgan Chase. Indeed, this should have solved the acute crisis, as JP Morgan CEO Jamie Dimon emphasized on Monday. Powell also stressed yesterday that the FRC was the “final line”.
As a result, the Federal Reserve Board of Governors deemed another rate hike appropriate to continue fighting inflation. It was the tenth hike in a row. The federal funds rate is now in the range of 5.0 to 5.25 basis points.
For a number of 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 the bonds and loans on the banks’ books are worth significantly. less than their official book value.
Thus, the shared banking system is also at the heart of the problem. Depositors are currently unsure whether their money is still safe at regional banks, especially since the FDIC has not yet declared deposit insurance for all U.S. banks. But the question seems to be how long it will take before the money printer is fired up again to save the banks.
US TREASURY MULLING DE FACTO INSURANCE ON ALL ACCOUNTS, INCLUDING THOSE OVER $250,000 TO VOTE REGIONAL BANKING CRISIS: GASPARINO
— FXHedge (@Fxhedgers) 3 May 2023
Why is Bitcoin up today?
Despite an extremely hawkish FOMC press conference by Powell, where he avoided any clear statement on a June interest rate pause and also ruled out the possibility of a rate cut before the end of the year (based on the Fed’s current scenario), Bitcoin has rallied since then.
As always, the reasons can only be speculated. However, the ongoing banking crisis and the weakened confidence in the system is certainly one reason. After all, Bitcoin was created precisely for this matter. Also, 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 probably a reason as the Fed is likely to swing faster than it says. According to CME’s FEDWatch tool, over 95% expect a rate break in June. In addition, the market expects two to three interest rate cuts before the end of the year. The market is calling Powell’s bluff.
At press time, the Bitcoin price stood at $29,179, up 3.5% since the FOMC meeting ended.
Featured image from iStock, chart from TradingView.com
