The banking crisis continued to deepen as Credit Suisse had to be rescued by UBS, another Swiss bank. Meanwhile, Bitcoin (BTC) surpassed $28,000 and investors remain expectant about what could happen this week in traditional financial markets. It is also worth pointing out that the Fed, the Bank of England, the Bank of Japan, the European Central Bank and other central banks around the world will urgently meet to discuss how to enhance liquidity provision.
Bitcoin Hits $28,000 As Banking Uncertainty Grows
Over the weekend, UBS announced the acquisition of Credit Suisse paying $3.2 billion. Regulators have also played a vital role in the deal as governments are trying to avoid a possible contagion effect that could also threaten the global banking system.
This is just one of the many different decisions taken by regulators over the last week, which has been full of uncertainty and worries about what could happen with the whole financial system. Apparently, governments want to avoid a similar situation as in 2008 when Lehmann Brothers fell and a contagion effect pushed the world economy into a crisis with effects that can be seen until today.
Another thing that is worth taking into consideration is that the banking system has changed after COVID-19. In some cases, nominal interest rates went into negative territory and, even today, some interest rates remain negative in real terms. This has increased the money circulating in the economy, pushing up prices. Inflation in the Eurozone has surpassed 10% and in some countries, it reached over 20%. Meanwhile, in the United States, inflation stayed close to 10%.
In addition, central banks allowed private banks to keep a lower amount of reserves in order for them to be able to lend more money. While this was effective in the short term to generate a strong recovery after the COVID-19 crisis, the consequences of this decision can be seen nowadays with this banking crisis.
People and investors are moving away their money from banks such as Credit Suisse, Silicon Valley Bank (SVB) and other entities that do not seem reliable. Several analysts consider that this could be an ongoing bank run.
So @CaitlinLong_ of Custodia Bank warned regulators about the risk of specific bank runs months ago.
Meanwhile, her bank applied for Fed access and wanted to have 108% of customer deposits in reserve (able to withstand a full bank run) and the Fed wouldn't give them access.
— Lyn Alden (@LynAldenContact) March 17, 2023
Now, different central banks around the world are announcing coordinated action in order to enhance the provision of liquidity using US dollar liquidity swaps. The operations will start as soon as Monday and will continue for at least a month (until the end of April).
Bitcoin Strengthens While Banks Weaken
Bitcoin, the virtual currency created during the 2008’s financial crisis, has reacted positively to the most recent news. While traditional financial markets continue to fall, Bitcoin has strengthened to over $28,300.
According to data shared by CoinMarketCap, Bitcoin expanded by 4.6% in the last 24 hours and registered an increase of almost 28% in the last seven days. This shows that there is a clear interest in purchasing Bitcoin.
Another important thing to consider that could have pushed Bitcoin price higher, besides the current banking crisis, is related to Balaji Srinivasan predicting that Bitcoin could reach $1 million in just 90 days due to hyperinflation in the United States. Srinivasan is the former Coinbase CTO and made a millionaire bet on these prices.
Here are the remaining references, as Twitter has a limit on the number of links in one post.
I am moving $2M into USDC for the bet. I will do it with Medlock and one other person, sufficient to prove the point. See my next tweet. Everyone else should https://t.co/R3lQp7Ffdt… https://t.co/KFnHvotLpK pic.twitter.com/ABxBmYmv9i
— Balaji (@balajis) March 17, 2023
As per Srinivasan, the unpayable debts in which the world and many economies are currently sitting will have to be paid with printed money. That means that they will not be paid in full.
As traditional financial markets continue to face uncertainty due to the ongoing banking crisis, investors are turning to Bitcoin as a safe haven asset. The digital currency has surged to over $28,000, a new all-time high, as people seek alternative ways to protect their wealth.
Bitcoin’s decentralized nature and limited supply make it an attractive option for those concerned about the inflationary pressures caused by the central banks’ monetary policies. The ongoing discussions among central banks about enhancing liquidity provision have only added to investors’ concerns about the future of traditional financial systems.
It is just a matter of time to see whether Bitcoin will reach $1 million in less than 90 days and how the banking industry will behave in the coming weeks.