On March 19, the United States Federal Reserve announced that it had entered a joint program with several major central banks — including the European
On March 19, the United States Federal Reserve announced that it had entered a joint program with several major central banks — including the European Central Bank, the Bank of Canada, the Bank of England, the Bank of Japan and the Swiss National Bank — to support U.S. dollar cash flow and alleviate strains in global funding markets.
Moreover, Fed Chair Jerome Powell said swap lines — agreements between two or more central banks to maintain a crucial liquidity backstop and ease strains in global funding markets — will remain active until at least the end of April.
This could result in the Federal Reserve slowing its rate hikes, which have been cited as a contributing factor to the ongoing banking crisis.
Since the beginning of March 2023, several major financial entities, including Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank and Credit Suisse, have collapsed.
Despite these developments, Bitcoin (BTC) has rallied, reaching a high of $28,500 on March 24, its highest level since the crypto crash of June 2022. After a slump in March, where the flagship cryptocurrency dropped below $20,000, Bitcoin seems to have resumed its 2023 rally.
Since January, when Bitcoin traded at around $16,500, the digital asset has gained an impressive 72.73%. Of the roughly 4,600 days of Bitcoin as a tradable asset, investors have experienced 4,065 profitable days, challenging the instability-driven narrative surrounding the crypto ecosystem.
The banking crisis explained
In recent weeks, the global banking industry has been rocked by a slew of events, sending shockwaves through financial markets. In Europe, Credit Suisse collapsed and had to be “rescued” by rival bank UBS.
This development did not surprise those following Credit Suisse’s monetary and legal troubles, which have been widely reported for months.
The Swiss National Bank and the Swiss Financial Market Supervisory Authority agreed to back up Credit Suisse with an emergency loan of 50 billion francs ($54.5 billion) if necessary. UBS agreed to purchase Credit Suisse for $3.25 billion, which is less than half its market value just days before, but much higher than the initial offer of $1 billion, which Credit Suisse declined.
Meanwhile, the United States faces its own banking crisis across the Atlantic. Several banks, including SVB, Signature Bank and Silvergate Bank, have collapsed recently, prompting the Federal Reserve and the government to shore up depositors. The banks mentioned above all faced large-scale bank runs. These events typically occur when a bank loses the confidence of its customers, resulting in mass withdrawal requests.
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In response to these developments, the Fed has used the Bank Term Funding Program (BTFP) to inject additional liquidity into the banking system and cover deposits, with politicians reassuring the public that the banking system is secure. While these actions have attempted to restore confidence in the banking system and financial markets, some analysts warn they may only provide a short-term solution.
A recent study has shown that the U.S. banking system is highly vulnerable, with many banks potentially becoming technically insolvent during a bank run. Assuming the worst-case scenario of 100% uninsured deposits withdrawn, the study’s authors note that over 1,600 U.S. banks could collapse overnight. What’s even more head-scratching is the researchers suggest that even if just 30% of uninsured deposits were to be withdrawn, 106 banks would collapse.
The numbers seem to be in favor of crypto
Bitcoin has been on a roll, gaining more than 13% over the past week and trading at $28,430 at the time of writing. The troubles facing the traditional banking system have raised concerns about trust in traditional assets, with more money seeming to flow into Bitcoin. According to data from Coinglass, open interest in Bitcoin futures reached $12 billion over the weekend, a yearly high pointing to renewed interest in the flagship cryptocurrency.
Bitcoin open interest refers to the total number of outstanding positions in Bitcoin futures contracts that have not been closed or settled. It is a measure of market activity and interest in Bitcoin futures trading. When open interest is high, it suggests a lot of investor interest in BTC and vice versa.
Meanwhile, most altcoins are also experiencing a pump, with most of the top ten cryptocurrencies by market cap — XRP (XRP), Cardano (ADA), Ether (ETH), Solana (SOL) and Litecoin (LTC) — posting gains of 5–20% in the past week.
The renewed interest in crypto comes amid growing concerns over inflation, increasing global debt levels, and the unprecedented monetary and fiscal policies adopted by central banks and governments worldwide.
What lies ahead for crypto?
With the ongoing fiscal momentum surrounding the crypto sector showing no signs of…
cointelegraph.com