The Bitcoin price has climbed back above $29,000 and the reason is like poetry. Just hours after U.S. Federal Reserve (Fed) Chairman Jerome Powell assured the public at yesterday’s FOMC meeting that the U.S. banking system is safe and sound, numerous regional banks have once again come under heavy pressure.
Regional Banks Still Under Heavy 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 plummeted because it’s clear to investors that either PACW will be sold off 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 U.S. banks were also caught in the downdraft 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 stock has plummeted -90%.
Metropolitan Bank (MCB) plunged -20%, down -63% year-to-date. Other regional banks with big problems include Valley National (-15%), HomeStreet (-11%), and Salt Lake City-based Zions (-10%). The total loss in market capitalization in the U.S. 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 https://t.co/yaASpcRNvr
— Jake Simmons (@realJakeSimmons) May 4, 2023
Just earlier this week, First Republic Bank (FRC) went bust and was sold shortly thereafter to America’s largest bank, JP Morgan Chase. This should have actually solved the acute crisis, as JP Morgan CEO Jamie Dimon emphasized on Monday. Powell also stressed yesterday that FRC was the “final line.”
As a result, the Federal Reserve Board of Governors considered another rate hike appropriate to continue fighting inflation. It was the tenth consecutive hike. 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 the 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 fractional banking system lies at the heart of the problem as well. Depositors are currently uncertain 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 before the money printer is fired up again to save banks.
US TREASURY MULLING DE FACTO DEPOSIT INSURANCE ON ALL ACCOUNTS, INCLUDING THOSE ABOVE $250K TO STEM REGIONAL BANKING CRISIS: GASPARINO
— FXHedge (@Fxhedgers) May 3, 2023
Why Is Bitcoin Up Today?
Despite an extremely hawkish FOMC press conference by Powell, at which he avoided any clear statement about an interest rate pause in June and also ruled out the possibility of rate cuts before the end of the year (based on the Fed’s current scenario), Bitcoin has risen thereafter.
As always, the reasons can only be speculated. However, the ongoing banking crisis and the eroding confidence in the system are certainly likely to be one reason. After all, Bitcoin was created precisely for this case. Moreover, gold also briefly reached a new all-time high yesterday. Remarkably, the correlation between Bitcoin and gold is at a 2-year-high, as Bitcoinist reported.
On the other hand, expectations are likely a reason as the Fed is likely to pivot sooner than it says. According to the CME’s FEDWatch tool, over 95% expect an interest rate pause in June. In addition, the market expects two to three 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, rising 3.5% since the FOMC meeting ended.
Featured image from iStock, chart from TradingView.com