Bitcoin Rises Above $29,000 M2 Supply Falls To 90-Year Low
Bitcoin price jumped above the crucial $27,800 resistance yesterday in response to the news about First Republic Bank and continues its rally above $29,000 today. As was the case after the collapse of Silicon Valley Bank and Silvergate, the news of a bank collapse acted as a trigger for an upward move for Bitcoin. And there are reasons to believe that the causes will not disappear anytime soon.
Yesterday’s news about First Republic Bank (FRC) came as a surprise: customers were withdrawing money in a big way. Deposits plunged 41 percent in the first quarter, as the bank announced on Monday.
In the fourth quarter of 2022, deposits were still at USD 176 billion. At the end of March, deposits were down to $104 billion, despite other major banks adding $30 billion to the FRC on March 16. Thus, without this infusion, the deposit would be $74 billion (58% loss). According to FOX, regulators are expected to seize FRC.
The stock market reaction followed on Tuesday, with shares of the 14th largest bank in the US falling sharply. “Meanwhile, the Fed/FDIC continues to say the banking system is ‘strong.’ There seems to be a huge disconnect here,” Note the analysts at The Kobeissi Letter.
Since March 1, shares in First Republic, $FRChas been stopped over 90 times.
The bank reported that over $100 billion in deposits were lost in Q1 2023.
Meanwhile, the Fed/FDIC continues to say the banking system is “strong.”
There seems to be a big disconnect here.
— The Kobeissi Letter (@KobeissiLetter) 25 April 2023
US banking crisis threatens as M2 dives deep
And there are other indications that warn of even greater problems in the American banking system. M2 money supply fell -1.2% m/m in March, the sharpest decline in 90 years. Although the absolute level is still significantly higher than before COVID, the contraction in the money supply is historically of the most explosive nature, as Nick Gerli pointed out in a Twitter thread.
The CEO and founder of Reventure Consulting warns that the only other times a comparable contraction occurred was followed by 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 NO ONE is paying attention to this. The Fed sucks money out of the system through QT. Just as the banks are at the beginning of a credit crunch. And equity/property investors are still “risk on”. Crazy,” writes Gerli, who shared the chart below.
The problem with this money contraction is that inflation is far from being beaten and businesses are in desperate need of money right now. As Gerli notes, this is a recipe for mass bankruptcies and layoffs, especially because of 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 only 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 money supply. Interest only. But I suspect that will change in the next 3-6 months. Because if the money supply continues to contract, there will be big problems.
History supports the claims of the expert, who sees only one hope: Banks will be aggressive with lending again in 2023, when the Fed will swing faster than expected, and “save the day”.
What does this mean for Bitcoin?
Long-term predictions are difficult, as Bitcoin has never traded in a recessionary environment. However, Bitcoin’s current reaction massively reinforces the “digital gold” narrative. The renowned analyst Ted (@tedtalksmacro) write:
Bonds/gold/dollar bids, while stocks are offered -> indication of a flight to safety in TradFi. Bitcoin would normally be offered in such an environment, but instead it was offered… The events of 2023 so far (banking crisis + central bank reaction) have done wonders for BTC’s digital gold/store of value.
Analyst James Choi looking a second reason for the current Bitcoin price rise, liquidity:
The second wave of regional banks hit by the FRC prompts the FED to inject more and more liquidity into the system. Market is a liquidity junkie and prices this already. Bitcoin is back above 28k. Commodities such as copper, crude oil, natural gas, silver all get 1%+.
At press time, the Bitcoin price was $29,006.
Featured image from iStock, chart from TradingView.com
