The banking crisis in the USA, which flared up again with the turmoil surrounding the First Republic Bank, is causing Bitcoin to rally today – but is this rally sustainable?
The banking crisis is a result of interest rate hikes by the US Federal Reserve. Investors are withdrawing their low-interest or non-interest-bearing money from US banks and moving it into money market funds, which currently offer almost 5% interest. This is forcing US banks to sell assets at a loss – mostly US government bonds, the prices of which had fallen significantly in the course of the interest rate hikes.
Bitcoin and the credit crunch in the aftermath of the banking crisis
But the outflow of liquidity results in a “credit crunch” – banks lend less because they have to keep every penny together. As a result, less liquidity flows into the economy and also into the financial markets. However, Bitcoin always rises when liquidity in the markets increases: it is no coincidence that Bitcoin had reached its previous all-time high of just over $68,000 as part of the massive liquidity that the Fed and other central banks poured into the markets because of Corona.
The following graphic shows the connection between Bitcoin and liquidity:
Chart: Fred
This means that liquidity on the markets will decrease in perspective due to the banking crisis – and that in turn will be a problem for the Bitcoin price!
Bitcoin: slowing momentum
Bitcoin is starting to test a key level, which some analysts say could prove to be a major turning point after this year’s price surge. This is now reported by Bloomberg.
The largest digital currency is trading around its 50-day moving average, with Bespoke Investment Group’s Paul Hickey noting that the level to watch is $27,500. If this level is not maintained, there is a risk that prices will fall.
Bitcoin spiked above $29,000 on Wednesday. It’s up about 74% this year, though positive momentum has stalled in the two weeks since the cryptocurrency surpassed $30,000 for the first time since June. Other tokens like Ether were also little changed, while smaller tokens like Solana and Polygon were down slightly on Tuesday.
Easing momentum: Bitcoin tests its 50-day moving average
Although prices have recovered this year, bitcoin is still trading at less than half the record high of nearly $69,000 set in November 2021. A series of industry scandals and bankruptcies over the past year has reduced the appeal of digital assets for many investors.
“We’ve seen a decrease in volume, market depth and liquidity, which translates into higher volatility,” said Ambre Soubiran, chief executive officer of crypto data provider Kaiko, in a Bloomberg TV interview. “Right now, this is an indication that despite the positive sentiment surrounding the price of these assets, the market has yet to return to pre-crisis levels of 2022 in terms of volume and, more importantly, market depth. “
Bitcoin: banking crisis and S&P 500
Bitcoin’s rise has been fueled by a variety of arguments, including claims that the asset is designed to act as a hedge against inflation and circumvent the vulnerabilities of traditional banking systems. So a kind of insurance against an escalation of the banking crisis. For Bespoke’s Hickey, however, shifts in Bitcoin’s relative strength coincide with shifts in the leading US index, the S&P 500, rather than leading movements in the stock market.
“Comparing the performance of the S&P 500 to Bitcoin’s relative strength versus the S&P 500 reveals a loose but unconvincing connection between the two markets,” he wrote in a note Tuesday. “Although bitcoin and the crypto space have little to do with the stock market, some traders are watching this space in the belief that it is a good barometer of overall risk appetite.”
S&P 500 and Bitcoin relative strength over the past two years
Bitcoin’s ratio to the S&P 500 peaked about two months before the S&P 500 peaked in late 2021-early 2022. But when the S&P 500 bottomed in October, Hickey pointed out that it took another two months for the relative strength of bitcoin picked up speed.
FMW/Bloomberg
2023-04-26 13:34:25
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