Don’t Miss 2024’s Biggest Blockbuster: The Year of Liquidity

by Juan Villaverde
By Juan Villaverde

Last week, I explained how the banks will be at the epicenter of the Federal Reserve’s next crisis.

And how crypto will benefit in the end.

And sure enough, we now have the latest chapter in this financial thriller. Well, it’s less like a sequel and more like a bad Hollywood remake.

New York Community Bancorp's (NYCB) dramatic plummet by 37% post-earnings last week was the blockbuster nobody bought tickets to see. Despite the bank's attempt to reassure its shareholders with the classic "our liquidity is as deep as an ocean" line, the stock fell further, sparking panic not seen since last season's cliffhanger with Silicon Valley Bank.

As a reminder, Silicon Valley Bank was one of several banks that had a majority of its deposits in U.S. Treasury notes. It was also crypto friendly.

Well, when depositors began leaving banks in droves — enticed away by higher yields in non-savings accounts — SVB faced insolvency because their Treasury notes were 30% to 50% below face value.

SVB was forced to close up shop. But to prevent further bank failures, the Fed rolled out the Bank Term Funding Program (BTFP). This program was a safety net, promising that the Fed would buy back immature bonds from banks at full face value.

But, as I said last week, the BTFP is going away in March.

Already, confidence is failing. And banking is, after all, the ultimate confidence trick.

The moment a bank admits to having a bad quarter, it's like announcing the ship is sinking — everyone rushes for the lifeboats, regardless of the captain’s reassurances.

NYCB's management shuffle and "ample liquidity" mantra seem less like a strategy and more like a plea for investors to please, pretty please, stop dumping their shares.

And the plot has one more twist: NYCB recently acquired assets from Signature Bank, another casualty of last year’s banking crisis. The irony is rich — a bank that absorbed the remnants of last year's crisis is now headlining this year's financial disaster film.

To no one’s shock, it didn’t take long for NYCB's contagion to spread sending shockwaves through the SPDR S&P Regional Banking ETF (KRE) and pushing it down by 13%.

That’s why I said this is a bad Hollywood remake, although I suppose the producers of this story is the Fed. It’s the same "this crisis is contained" narrative it tried peddling last year.

But while we all may enjoy turning off our brains for the latest big action blockbuster, I’m less inclined to indulge in the comfort of denial when it comes to the markets.  

See, the talking heads may have forgotten the domino effect from last year's banking soap opera. But I haven’t.

Amidst this turmoil, savvy investors should remember the golden rule: He who sells first, sells best. 

And I have a hunch when it comes to the coming volatility in the banking sector, investors will be clamoring to be the first to sell.

As capital flees from the embattled regional banks to the fortress-like vaults of the banks deemed “too big to fail” — institutions like JPMorgan Chase (JPM) and Bank of America (BAC) — I am reminded that the U.S. in reality has a two-tier banking system.

Those elite national institutions enjoy the warm embrace of government guarantees while the rest shiver in the cold.

Look no further than Fed Chair Jerome Powell’s plan to pull the plug on the BTFP … even though the banking sector stressors are clearly still in play.

For regional banks struggling in the tumultuous seas of commercial real estate loans, the Fed has a plan: keep swimming … or drown.

There’s one thing I can tell you, however, that you can take straight to the bank — just not a regional one. And that’s this: More liquidity is coming. And it’s going to be rocket fuel for crypto.

Without massive Fed and U.S. Treasury support, this new wave of failures will not stop at NYCB. More banks will fail, just like last year.

The banking system is a globally interconnected network, after all. And not that different from a public open blockchain, except in one key respect: Where the blockchain is transparent, the banking system is opaque.

That is, we can’t see who may be hiding losses where.

Only a tsunami of freshly printed money can restore a measure of stability. This is what is coming down the pike.

Think of it as 2023, only bigger.

As we brace for the sequel to last year’s banking crisis — complete with more drama, more failures and even more money printing — one thing is clear: This financial blockbuster, directed by the Fed and coproduced by the Treasury, promises to be bigger, bolder and more lucrative for those betting on crypto.

Don't miss out on the premiere of "2024: The Year of Liquidity." It's going to be a wild ride.


Juan Villaverde

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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