• Bitcoin price recently broke the $28,000 mark but futures and options data suggest some traders are uneasy about the strength of the recent bullish momentum.
• The recent rescue of Credit Suisse and emergency credit lifeline provided by the United States Treasury indicate that global banking crisis might not be over.
• The Federal Reserve has abandoned its inflation-control policies and First Republic Bank saw its credit ratings downgraded further into junk status.
Bitcoin Price Breaks $28,000 But Rally May Be Unsustainable
Bitcoin price recently crossed the $28,000 mark, but BTC futures and options data suggest some traders are uneasy about the strength of the recent bullish momentum. This is likely due to multiple factors indicating that the global banking crisis might not be over yet.
Credit Suisse Rescue
On March 19, Swiss authorities announced that UBS had agreed to acquire rival Credit Suisse in an “emergency rescue” merger in order to avoid further market-shaking turmoil in the global banking sector. This transaction could benefit from more than $280 billion in state and central bank support, which is equivalent to one-third of Switzerland’s gross domestic product.
Emergency Credit Lifeline From US Treasury
The United States Treasury also provided an emergency credit lifeline to protect the banking sector and increase Federal Deposit Insurance Corporation reserves. This “Bank Term Funding Program” (BTFP) was launched on March 12 and marked a return to Fed liquidity injections, reversing a trend initiated in June 2022 when the Federal Reserve began monthly asset sales.
Fed Abandons Inflation Control Policies
By lending $300 billion in emergency funds to banks, the Fed completely reversed its strategy to curb inflation which has been above 5% year-over-year since June 2021 (the target being 2%). This strategy included increasing interest rates and reducing the $4.8 trillion in assets the Federal Reserve accumulated from March 2020 to April 2022.
FRB Credit Ratings Downgraded Further Into Junk Status
On March 20, First Republic Bank (FRB) saw its credit ratings downgraded further into junk status by S&P Global as a deposit infusion from 11 large banks may not be enough to restore investor confidence in regional banks across United States.