As the world grapples with a banking crisis on the brink of chaos, the US Federal Reserve has taken drastic steps to inject liquidity into markets. The move caused an unexpected reaction from the crypto markets, especially Bitcoin.
The Fed’s balancing act between tightening and easing amid rising interest rates and a series of bank bailouts has led many investors to question the safety of their assets.
Banking crisis spreads globally
In the U.S., several banks, including Silvergate, Silicon Valley Bank, Signature Bank and First Republic Bank, are under intense pressure and require government or private market intervention. But the crisis is not limited to this.
European banks such as Credit Suisse and Deutsche Bank are also struggling to stay afloat.
silver gate, Silicon Valley Bank, Signature Bank, First Republic Bank, Credit Suisse, Deutsche Bank and Bitcoin | Source: TradingView
Governments and central banks around the world have intervened to mitigate the crisis to provide liquidity.
The US Federal Reserve (Fed), the Federal Deposit Insurance Corporation (FDIC) and other institutions have poured money into America’s troubled banks. The move added $400 billion to the Fed’s balance sheet in just two weeks.
This rapid growth has offset 64% of the progress made by quantitative tightening over the past year.
Federal Reserve Balance Sheet | Source: Federal Reserve
However, the market remains unclear on the Fed’s strategy. The flood of liquidity injections has baffled the market at a time when interest rates have continued to rise.
Apollo Partner and Chief Economist Torsten Slok, confirm The difference between the federal funds rate and the current account rate is “the root cause of the outflow of funds from bank deposits.”
According to Slok, widening spreads are “very unusual compared with previous banking crises, where the source of the volatility was often credit losses.”
fed funds rate and interest rate | Source: Apollo Global Management
Bitcoin Thrives Amid a Psychological Awakening
Because of this uncertainty, many investors have turned to alternatives such as bitcoin, gold and real estate. Concerns about the security of traditional banking have “awakened emotions” in the Bitcoin community.
Coupled with a desire for higher yields, this has led to capital inflows into money market funds and other non-deposit assets, putting additional pressure on the banking system.
Economist Nouriel Roubini says savers are starting to realize that “they can earn 4% on safe-haven short-term bills and almost 0% on bank deposits.” is becoming the main reason for the current bank run.
According to Dr.Doom, the days of banks benefiting from free deposits are coming to an end.elder brother get conclusion Changes in interest rates have a much larger impact on deposits.
Bitcoin, Gold, Treasury Bills and Real Estate | Source: TradingView
As grim as the situation is, experts believe the banking crisis will eventually be resolved as governments and central banks work tirelessly to prevent bank failures across the U.S., domestically and internationally.
European Central Bank President Christine Lagarde, explain At a press conference after announcing a 0.5 percentage point hike in the deposit rate:
“Essentially, the economy looks set to rebound over the next few quarters. Industrial production will pick up as supply conditions improve further, confidence continues to recover and businesses work through large backlogs of orders. Loss of purchasing power due to inflation. This will support user spending.”
However, efforts to stabilize the system could lead to further inflationary pressures and further increases in food prices.
Global Food Price Index | Source: FRED
At the same time, investors are increasingly diversifying their portfolios and gaining confidence in alternatives such as Bitcoin. Over 4.28 million Bitcoin wallets have been created on the network with balances of 0.1 BTC or more.
As the world continues to navigate this fraught financial landscape, it’s clear that younger generations are more inclined to rely on software-driven solutions than human-led systems.
Number of Bitcoin addresses with a balance above 0.1 BTC | Source: Glassnode
Investors will have to keep a close eye on how the central bank reacts. Likewise, developments in Europe and other affected regions may be instructive as the global banking crisis unfolds.
Current trends in debt-based economies and fractional-reserve banking systems suggest that alternative assets such as Bitcoin could be the biggest winners in the long run.
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Mingying
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