Insolvent Banks and Stock Volatility: Ingredients for a Bitcoin Bull Run?

• The complex details of SVB’s failure are still unknown, and the current state is driven by emotion
• Volatility in the bond market has risen to levels not seen since the Great Financial Crisis and could lead to a sell-off in stocks
• Meanwhile, Bitcoin has recently seen an inflow of $200 billion, up 38% in the past 7 days

SVB was a listed bank. It was focused on new technologies, meaning it did most of its business with American startups. In recent weeks, SVB Financial Group announced that it had sold $21 billion in securities and $2.25 billion in new shares to shore up its finances.

This upset the investors, who eventually wanted to withdraw their money from the bank. Efforts to find new buyers were abandoned, and the Federal Deposit Insurance Corp forced the bank to close.

The same technology companies that made SVB grow so quickly caused SVB to fail. With the influx of branches, SVB had to sell bonds (which had lost some of their value), resulting in losses of $1.8 billion that would not have hit the balance sheet if they had been held to maturity.

SVB’s problems coincided with the closure of Silvergate Capital (NYSE:SI) and Credit Suisse (NYSE:CS).

I have encountered many comments from analysts and speculators discussing certain implications that I disagree with. Moreover, these comments often appear to be based on unwarranted assumptions.

We still have very little idea of ​​the smallest details of what has happened, and the only common thread that connects all the big (unexpected) events is how little we know, both about how they play out and what might happen in the months and the years to come. .

Today’s condition is driven by emotions, which generally lead to inaccurate judgments.

Many do not focus on the unknown surrounding this event:

• Why did the bank invest so much capital in long-dated government bonds?
• Why did Peter Thiel (and others) advise startups/companies to prepare to protect deposits?
• Were there other conflicts of interest?
• What other banks might have similar problems with their “safe” investments?

At the moment, even on the EU side, the solution is to address the liquidity problem but not the solvency problem. The latter is downplayed or even treated as non-existent, and the main solution is based on reassuring speeches.

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The ECB went ahead and raised interest rates by 50 basis points, underscoring the regional nature of the problem. Is the regional banking crisis just a limited event, or is the perfect storm coming?

When we have such questions, the first place to look is the bond market. Any signal of stress will tend to manifest here.

Let’s overlay the bond volatility index with the stock volatility index.

MOVE, the index that measures the implied volatility of the US bond market, determines the “emotional state” through two values, 80 points representing market calm and 100 points representing extreme volatility.

When the index fell below 80 and reached 38, which represented an all-time low, it signaled that stocks were going to collapse. However, it has since rallied back above 100.

This is because investors have returned to bonds. In recent months, it has fallen back to the 100 level. It is now back at 180. This is extremely high volatility, which indicates risk aversion on the part of investors.

This kind of bond volatility has not been seen since the Great Financial Crisis. The relationship to the VIX means that volatility in one asset class generally leads to volatility in the other.

Just look at how closely these lines follow each other, so if one trends higher, the other will also be drawn higher. Does that mean broader selling pressure for stocks?

That said, we’ve all thought about déjà vu – even if it’s not the subprime/securitized mortgage debacle of 2008-09, I can (and no one can) guarantee that nothing untoward will happen.

But if there is one theme that unites all of these (past) events, as mentioned above, it is how little we are aware of how they play out in real time. The fear remains of a systemic infection.

Could this panic go viral and lead to the collapse of the banking system?

The 10-2 year Treasury yield spread has made its biggest move since the early 1980s. Isn’t that a good thing, you might say? Inverted yield curves are leading indicators of recessions.

So does this mean that a strong move higher can bring calm? In theory.

By overlaying the spread with the S&P 500, the bear market, shown in the chart above, began every time the latter broke out of negative territory (2001-2007-2020).

I’m not saying it will happen 100% of the time, but it is certain that volatility in the bond market is never a good thing for the market in general.

Banks continue to buy gold through all this. In 2022 alone, central banks bought a record 1,136 tons of gold, worth around $70 billion.

Gold hits March 2022 highs (+9% year-to-date from March 8 levels) as banking crisis looms.

Could it make new 52-week highs?

Meanwhile, as it remains at the top of the world’s most valuable assets by market capitalization, Bitcoin is climbing up the rankings (worth more than Visa and Meta).

Bitcoin is the number of people who have faith in it, the intensity of that faith, and the future value it represents.

So we can say that it is still quite undervalued and the longer it survives, the lower the risk and greater functionality to become a permanent store of value like gold.

In the last week, the cryptocurrency market has seen an inflow of $200 billion. Bitcoin is up 38% in the last seven days, while Ethereum is up 26% (as of this writing).

And the total crypto market capitalization has increased from $918 billion to $1.17 trillion. Are people putting money into BTC faster than the Fed can print $300 billion out of thin air to bail out the banks?

Cathie Wood continues to buy Coinbase Global Inc (NASDAQ:COIN) shares with the ARK Next Generation Internet ETF (NYSE:ARKW) and ARK Innovation ETF (NYSE:ARKK), which account for about 30 percent of all shares bought in 2023.

Even Buffett, who has been critical of cryptocurrencies, has bet on Nubank (Brazilian fintech giant), which offers crypto trading services.

Maybe CZ (Binance) is right?

Or Balaji (the former CTO of Coinbase)?

Entrepreneur, co-founder of Counsyl, 21 Inc/Earn, former CTO of Coinbase, and General Partner of Andreessen Horowitz, Balaji is betting $2 million that 1 BTC will be worth $1 million in 90 days.

This is because the banks are insolvent.

Meanwhile, Bitcoin hit $28,000 as the Fed released its budget, revealing that $300 billion will be injected into the economy in response to the crisis.

The incident, which should not be underestimated, virtually nullified quantitative tightening by adopting the opposite strategy, i.e. quantitative easing.

Bitcoin is volatile right now and it will probably go sideways later. But at the same time, it needs to hold the $26K level which could allow momentum to carry it towards $30K.

Also, according to PlanB, the bull market is about to start again.

We can see that the digital currency is back above the 4-year moving average (1,458 days) in addition to the bullish RSI.

Historically, the SMA 1458 indicator has proven to be a reliable support for bitcoin.

In conclusion, the market is simply doing what it has always done because investor behavior has not changed much in the last 100 years.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, advisory or recommendation to invest as such, it is not intended to stimulate the purchase of assets in any way. I would like to remind you that any kind of asset is evaluated from several points of view and is very risky, and therefore any investment decision and the associated risk remain with the investor.

Written by:
Calogero Selvaggio/Investing.com