Breaking News
Get 40% Off 0
🔎 See NVDA full ProTips for an instant risks or rewards Claim 40% OFF

Bitcoin Up 75% YTD as Banking Crisis Resurfaces

By The Tokenist (Timothy Fries )CryptocurrencyApr 27, 2023 12:37
ph.investing.com/analysis/bitcoin-up-75-ytd-as-banking-crisis-resurfaces-165360
Bitcoin Up 75% YTD as Banking Crisis Resurfaces
By The Tokenist (Timothy Fries )   |  Apr 27, 2023 12:37
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
BTC/USD
+1.26%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
FRCB
0.00%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DXY
+0.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LUNAt/USD
+0.98%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The latest trigger for Bitcoin’s rally comes from the First Republic Bank (NYSE:FRC) earnings report and rumors of federal seizure.

For a long time, after Bitcoin launched, it was commonplace to say that Bitcoin is a hedge against inflation. After much adoption and maturity, this thesis was tested in 2022 when the Federal Reserve began the fastest hiking cycle in 40 years to curb an equally historical inflation rate. Bitcoin’s price hit $30,000 today as another US bank seems to inch closer to collapse.

Bitcoin Gains from Banking Woes

As the Fed increased its M2 money supply by 39% from 2020 to 2022, all crypto assets were beneficiaries. The historic surge in liquidity ballooned both stocks and cryptos, with the latter nearing the $3 trillion market cap milestone in November 2021. This was when Bitcoin’s price hit an all-time high at $67.5k.

However, as the Fed began to undo the damage it caused, inflation, it was all downhill from there for Bitcoin. As quantitative easing (QE) turned into quantitative tightening (QT), the dollar strengthened, and the Bitcoin price waned. This was exacerbated when the central bank popped the balloons of big crypto players, from Terra and Celsius to 3AC and FTX.

But as the hiking cycle nears its end and the Fed shakes the legs of more fragile commercial banks, Bitcoin is thriving again.

BTC/USD Daily Chart
BTC/USD Daily Chart

Of the three banks, Silvergate’s downfall, as the provider of fiat-to-crypto rails for exchanges, was the only one exerting negative pressure on Bitcoin price. Image credit: Trading View

From this dynamic, Bitcoin is not so much a hedge against inflation as initially speculated. More precisely, it is now more evident that Bitcoin is primarily a hedge against currency debasement. On a broader scale, it is a hedge against the more considerable instability caused by central banking via its fractional reserve system, wherein banks only hold a fraction of customers’ deposits.

This starkly contrasts the entire concept of Bitcoin, which offers decentralized self-custody of a limited coin supply that cannot be printed at will.

First Republic Bank: the Latest Domino to Fall?

First Republic Bank (FRC) issued its Q1 earnings report on Monday. Year-over-year, the bank’s total deposits shrunk from $176.4 billion to $104.4 billion, higher than expected. When the $30 billion emergency injection from large banks is excluded, that translates to a $102 billion deposit drain.

Only 52% of those deposits were insured. More importantly, FRC has $80.3 billion in short-term debt, with $63.5 billion coming from the Federal Reserve Discount Window. This is a clear sign of financial distress, compounded by lower bank loan yields.

Monthly Deposit Shrinkage Of The US Banking Sector
Monthly Deposit Shrinkage Of The US Banking Sector

Monthly deposit shrinkage of the US banking sector over one year. Image credit: CEIC Data

Namely, FRC has $103 billion in real estate loans at a 3.18% yield, while its short-term borrowings range from 4% to 5.15% interest rates. The current drain of capital makes the bank’s operating model unsustainable.

According to a CNBC exclusive, the bank’s advisors are trying to inject one more liquidity injection from the big banks. However, as the FRC stock is in a -95% year-to-date freefall, the FDIC will likely seize the bank sooner rather than later.

Banks Are Not Money Warehouses

When it comes down to it, people’s confidence in banking depends on the Federal Reserve. Unfortunately, the central bank tends to destabilize commercial banks in a variety of ways:

  • In a hiking cycle, increased borrowing costs reduce banks’ profitability as it increases their debt exposure.
  • In a hiking cycle, increased borrowing costs also increase loan defaults, leading to losses for commercial banks.
  • In a hiking cycle, the banks’ net interest margin tightens between borrowing at lower rates and lending at higher rates, with interest paid out on deposits outpacing the interest earned from loans.
  • In a hiking cycle, especially as sharp as this one, greater volatility translates to a greater inability to raise capital.

Of course, the hiking cycle itself was tripped by the Fed’s unprecedented liquidity flood. Notably, this string of vulnerabilities is baked into the Fed’s monetary policy. Current Fed Chair, Jerome Powell, said so himself in 2012 when he was serving as a member of the Board of Governors.

“Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.”

With the banking credit crunch now in play, recession is the most likely scenario.

On the upside, the recession is inflation’s kryptonite. Likewise, the Fed will enter the rate-cutting cycle to stimulate the economy. In that scenario, Bitcoin only benefits. Considering this macro dynamic, Standard Chartered’s digital division chief, Geoff Kendrick, said on Monday that Bitcoin could reach a new ATH of $100k by the end of 2024.

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

***

Disclaimer: This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Bitcoin Up 75% YTD as Banking Crisis Resurfaces
 

Related Articles

Dr. Arnout ter Schure
Local Top in Bitcoin Soon? By Dr. Arnout ter Schure - Feb 21, 2024

In our last update on Bitcoin (BTC), from almost a month ago, we found that based on our Elliott Wave Principle (EWP) count: “…BTC should now be in (grey) W-a of green...

Bitcoin Up 75% YTD as Banking Crisis Resurfaces

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email