Bitcoin falters as President Biden admits US banking sector is weak

US President Joe Biden, who spoke at National Small Business Week on May 1, has admitted that the US banking system is fragile. In a recent statement, the head of state revealed that the government will implement measures to ensure that its financial system remains “sound and safe.”

Despite Biden’s comments, Bitcoin and most cryptocurrencies remain lower. Bitcoin is down 4% in the last 24 hours and about 10% from its April 2023 peak, trading at $28,100.

Banks are collapsing in the US, President Biden’s assurance

The president’s comments follow the collapse of First Republic Bank, the third major bank to collapse in less than two months.

The bank’s failure saw share prices crash in late April 2023 as Bitcoin prices surged, reaching as high as $30,000 on April 26. At this point, the cryptocurrency recovered from worrying losses from mid-April 2023.

As of April 26, First Republic Bank’s stock fell as much as 50% when trading was halted several times on the New York Stock Exchange.

The San Francisco-based bank revealed that it was bleeding deposits, losing over $72 billion as customers moved their money elsewhere in Q1 2023.

The crisis and banking operations at First Republic Bank were further compounded when two banks, Silicon Valley Bank (SVB) and Signature Bank, came under fire around the same time that cracks began to appear in the American banking system.

SVB saw a deluge of withdrawal requests in a bank run where services were temporarily suspended in the second week of March. Around this time, First Republic Bank also said it received a $30 billion capital infusion from 11 lenders.

First Republic Bank’s assets were taken over by the Federal Deposit Insurance Corporation (FDIC) and later sold to JP Morgan Chase in a $10.6 billion deal.

It is against this backdrop, and with several banks in the United States that appear to be facing a liquidity crisis, that Biden assures depositors that the government will intervene to calm the waters and stabilize the sector. Specifically, Biden so The government wants to protect depositors, including small businesses that need to process wages for workers. The Head of State added:

Let me be absolutely clear, all depositors are protected. The shareholders lose their investments. And critically, taxpayers are not on the hook. (The government’s) actions are to ensure that the banking system is safe and sound, and that includes protecting small businesses across the country that need to pay wages for workers.

Bitcoin does not respond, pulls back from April highs

Bitcoin price action is increasingly in sync with the overall macroeconomic environment, particularly in reacting to the state of the US banking system.

For example, when SVB collapsed in mid-March, Bitcoin prices rallied, adding 58% from March 2023 lows before peaking at $31,000.

At the moment, prices are lower, back from peaks in April, and are not responding to the promise of US intervention to make the banking sector more robust. However, any threat to the legacy financial system will support a rise in the cryptocurrency in the long term.

Feature image from Canva, chart from TradingView