Bank Stocks Down, but Bitcoin Rallies

By Marija Matic

Last week, our team worked to keep you informed of all the developments as the collapse of one crypto-friendly bank caused chaos that spread like contagion through the market.

After Silvergate, the next bank affected was Silicon Valley Bank. In light of this, the Federal Deposit Insurance Corporation stepped in and insured all SVB depositors up to 100% of their deposits.

This backstop, with up to $25 billion guaranteed lending for distressed banks, is supposed to contain that contagion. However, the fears for the banking sector are renewed since trading was halted for multiple U.S. bank stocks at open after an unprecedented dump. These included …

Western AllianceBancorp (WAL), which was down 75% …

First Republic Bank (FRC), down 66% and …

Customers Bancorp (CUBI) was down 54% at the open.

Overall, the Invesco KBW Bank ETF (KBWB), which tracks the sector, fell 8.9% today.

The pain made its way across the pond, too, with bank stocks in Britain, Italy and Spain also dropping significantly. Even though European banks have not suffered as drastically as the U.S. ones, they still saw their worst day in more than a year (when they were impacted by the Ukraine war).

In short, there is a significant international fallout from SVB’s bank run already. 

I explained last Monday why woes in the banking industry would impact crypto. And when Silvergate’s struggles came to light, sure enough, the broad market struggled.

But that’s not what we’re seeing now. Rather, Bitcoin (BTC, Tech/Adoption Grade “B+”) rallied an incredible 15% today as it traded in a completely uncorrelated manner to bank stocks.

Investors seem to be finding safety in Bitcoin, despite three crypto-friendly banks — Silvergate, SVB and, as of this morning, Signature Bank — collapsing. There seems to be more mistrust in the banking sector than Bitcoin at the moment.

It is moments like these that highlight why a decentralized financial system outside the control of a single authority is so important.

The move up was so explosive that BTC not only broke above $24,000, but also all daily exponential moving average and MA indicators.

If this bullish momentum continues, the next important resistance will be at $25,250.

Click here to view full-sized image.

The salvation of USD Coin (USDC, Stablecoin) also cannot be ignored in relation to this positive price action.

See, $3.3 billion of USDC’s collateral — which totals $42 billion — was held at SVB. Panic set in, which caused the centralized stablecoin to depeg from the U.S. dollar over the weekend.

So, once the backstop for SVB depositors was announced, USDC’s collateral was protected as well. With that panic calmed, USDC was able to reclaim its peg, and crypto users were able to breathe a deep sigh of relief.

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What’s Next

While the market was predicting a 50-basis-point hike just a few days ago, the largest banks —such as Barclays (BCS) and Goldman Sachs (GS) — now think there will be no hike in March.

That’s an incredible turn of events.

Now the masses are aware that underperforming long-term Treasurys have spoiled the balance sheets of a handful of banks, not just SVB. And if the Fed continues to hike rates, the situation will get worse.

So, the pause is quite likely as the banking crisis seems more urgent than fighting inflation right now. The banking sector is on shaky legs, and any possible announcement or leak from the Fed’s closed emergency meeting today may influence the situation. So, everyone will have to tread carefully.

Still, questions abound …

Has the government acted quickly enough to calm down nervous depositors at other banks?

Will the crisis be contained by the $25 billion bailout?

Or should we expect more expensive collapse of other banks? If so, who will be next?

Unfortunately for those answers, we’ll have to sit tight and wait.

Until then, though, the rest of the week will be packed with events to keep us busy.

The February Consumer Price Index data is scheduled to be released tomorrow, followed by the Producer Price Index data on Wednesday. We will need to see the readings and how the market and Fed will react, but we can be confident that volatility lies ahead of us this week.

For now, we have our fingers crossed that the crypto market can continue behaving in an uncorrelated manner … despite the economic data and upcoming difficulties in finding crypto-friendly banks.

After all, when an asset can trade well despite severe headlines and panicked investors, it means there is an underlying strength that can’t be denied.

Best,

Marija

P.S. — Trying to navigate the crypto market, especially in volatile times like this, can be overwhelming. That’s where my colleague Juan Villaverde’s Crypto Timing Model comes in. Designed to follow the market cycles, the Crypto Timing Model helps Juan determine not just what assets to target … but when to act.

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To my knowledge, he’s the only one who called it right.

Investors who bought Bitcoin on the day of Juan’s announcement could have seen it surge 20.1x over — enough to turn a $10,000 investment into $200,832.

To learn more about his Crypto Timing Model and how Juan plans on using it to make the most of the next bull run, I suggest you watch this timely video conference.