MacroSlate Weekly: Bitcoin Emerges Strong Amidst Banking Failures and Bailouts
Last week, several financial institutions experienced liquidity problems, and the Federal Reserve initiated what has been referred to as “stealth quantitative easing.” Through it all, Bitcoin emerged strong, hitting $27,000 and increasing by roughly 60% Year-to-Date (YTD).
Macro Highlights
The US is experiencing high inflation, but mostly in line with expectations, too high for rate relief. On the other hand, the European Central Bank (ECB) raised 50bps, boosting its deposit rate to 3%. Furthermore, Silicon Valley Bank filed for Chapter 11 bankruptcy, while Credit Suisse and First Republic Bank were repeatedly provided with liquidity. Moreover, Fed initiated a stealth QE that increased its balance sheet by $300 billion.
Bitcoin Highlights
Bitcoin’s open interest dropped by 15% in the past two weeks, but that did not stop it from dominating against Ethereum. Additionally, Bitcoin self-custody surged.
Stealth QE and Bailouts
Credit Suisse received a liquidity lifeline from the Swiss National Bank, borrowing up to 50 billion CHF, which is equivalent to 6.25% of Swiss GDP. In the same vein, First Republic Bank’s (FRB) shares dropped by 78% in the past month. News later emerged that 11 big banks were helping FRB, pledging $30 billion. However, the stock continued to slide into Friday’s session.
Fed’s Balance Sheet
The Fed’s balance sheet increased by over $300 billion this week, marking half of the quantitative tightening it has done for the past year. The increase in the balance sheet resulted from the Bank Term Funding Program, which allowed institutions to swap devalued assets for full-value cash. Meanwhile, the Fed’s discount window rose to $148 billion, the highest since 2008, ensuring that distressed banks called for Fed liquidity.
ECB Hike
The ECB hiked 50bps for the third consecutive session, bringing its deposit facility rate to 3%. The deposit rate was at 0 just six months ago. The ECB reaffirmed its commitment to fighting inflation, which it claimed was projected to be too high for too long. Forward guidance was removed, indicating no understanding of future moves. However, the ECB reiterated the importance of steady hands to navigate the uncertainty in the financial markets.
Bitcoin’s Resilience Amidst Financial Uncertainty
Despite the many challenges faced by the global financial markets, Bitcoin remains a stable asset. It has surged past levels that analysts thought were lofty just a few weeks ago. Although it is volatile, it is unlike traditional financial assets. Bitcoin has become a hedge for many investors who are looking to protect their wealth from the devaluation of currencies or other financial crises.
Bitcoin’s current strength, particularly in the context of the financial failures of several large banks, is particularly noteworthy. Bitcoin offers investors the opportunity to take control of their wealth by opting for self-custody solutions. Self-custody surged in the past month, indicating that more investors are interested in taking control of their wealth.
Bitcoin also offers investors the opportunity to avoid the difficulties of dealing with traditional banks. Traditional institutions are prone to various liquidity and solvency problems that could affect clients. Bitcoin, on the other hand, has a decentralized nature that ensures that there is no central authority or single point of failure that could be exploited.
Conclusion
The global financial markets witnessed several setbacks last week, including banking failures and bailouts, high inflation in the US, and a hike of 50bps by the European Central Bank. However, Bitcoin has remained strong throughout the financial turmoil, hitting an all-time high of $27,000 while experiencing a surge in self-custody.
In summary, Bitcoin has become a stable asset in the face of financial uncertainty, offering investors the opportunity to take control of their wealth and avoid the difficulties of dealing with traditional banks. Bitcoin has emerged stronger than ever and continues to attract more investors looking to hedge their wealth against the devaluation of currencies or other financial crises.
