The price of Bitcoin (BTC) surpassed $28,000 on March 21, but according to two derivatives metrics, traders aren’t very ecstatic after a 36% gain in eight days. Looking beyond Bitcoin’s stellar performance, there are reasons why investors are not fully confident in further price upside The recent rescue of Credit Suisse, a 167-year-old leading Swiss financial institution, is proof that the current global banking crisis might not be over.
On March 19, Swiss authorities announced that UBS had agreed to acquire rival Credit Suisse in an “emergency rescue” merger in order to avoid further market-shaking turmoil in the global banking sector. The transaction could benefit from more than $280 billion in state and central bank support, which is equivalent to one-third of Switzerland’s GDP. Unfortunately, there is no way to portray this agreement as reassuring or as a sign of strength from financial institutions, including central banks.
The same can be said for the emergency credit lifeline provided by the U.S. Treasury to protect the banking sector and increase FDIC reserves. The “Bank Term Funding Program” (BTFP) launched on March 12 marked a return to Fed liquidity injections, reversing the trend initiated in June 2022, when the Federal Reserve began monthly asset sales.
The global banking crisis prompted the Federal Reserve to abandon its inflation-control policies
By lending $300 billion in emergency funds to banks, the Fed completely reversed its strategy to curb inflation, which has been above 5% year-over-year since June 2021, whereas the target is 2%. This strategy, known as tightening, included increasing interest rates and reducing the $4.8 trillion in assets the Federal Reserve accumulated from March 2020 to April 2022.
On March 20,First Republic Bank (FRB) saw its credit ratings downgraded further into junk status by S&P Global, adding to the stress in the United States’ regional banks. According to the risk agency, the lender’s recent $30 billion deposit infusion from 11 large banks may not be enough to solve the FRB’s liquidity problems.
Investors in cryptocurrencies are always anticipating a decoupling from the traditional markets. Nonetheless, there are few justifications for an allocation at the moment, especially if coming from corporations, mutual fund managers, or wealthy investors. Historically, investors tend to hoard cash positions or short-term government debt instruments during recessionary periods in order to sustain day-to-day…
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