Powell Testimony: DXY breaks 105, BTC down to 22k as support, new peak rate of 5.60% in futures market
‘Fiat Is Fragile’ — Silicon Valley Bank’s Collapse Sparks Finger-Pointing And Concerns Of Contagion
Silicon Valley Bank (SVB) has become the center of attention after its collapse prompted the U.S. Federal Deposit Insurance Corporation (FDIC) to shut the bank down on Friday. It was the largest U.S. bank failure since 2008, and various alleged catalysts have been pointed to. Some believe venture capitalists caused a bank run, while others blame the U.S. Federal Reserve’s rate hikes. Economist and gold bug Peter Schiff said on Friday that the U.S. banking system would experience more trouble ahead. He and several speculators believe that these financial institutions hold mountains of long-term treasuries.
Calls for SVB Intervention as Market Observers Predict Larger Financial Collapse in the U.S.
Over the past week, two U.S. banking institutions, Silvergate Bank and Silicon Valley Bank (SVB) failed. SVB’s collapse was the largest banking failure since Washington Mutual (Wamu) in 2008, which was blamed on expanding branches too quickly and holding massive amounts of subprime mortgages lent to so-called unqualified buyers.
Before its collapse, Wamu held $188.3 billion in deposits, while SVB is estimated to have lost around $175.4 billion in deposits. However, while SVB’s deposits at the end of December 2022 were $175.4 billion, customers attempted to remove $42 billion on Thursday alone. It’s safe to say that SVB’s demise was a lot faster than Wamu’s collapse at the end of 2008.
Just days before its collapse, SVB attempted to strengthen its balance sheet by announcing the need to raise $2.25 billion. The bank also sold its available-for-sale (AFS) bond portfolio for $21 billion, resulting in a $1.8 billion loss from the sale. SVB is well-known for banking tech startups and venture capital (VC) money, and some market observers believe that these clients caused a bank run.
“This was a hysteria-induced bank run caused by VCs,” said Ryan Falvey, a fintech investor at Restive Ventures, in an interview with CNBC on Friday. “This is going to be remembered as one of the ultimate cases of an industry cutting off its nose to spite its face,” he added.
Other analysts and market observers are blaming the illogical inverted yield curve that long and short-term Treasuries are facing today, as well as the U.S. Federal Reserve rate hikes. Soona Amhaz, founder and managing partner at Volt Capital, said: “The open secret is that technically most U.S. banks are bankrupt right now, as they’re all sitting on long-duration treasuries that are underwater in a 4% interest rate environment.”
Economist and gold bug Peter Schiff shares a similar view to Amhaz, expecting a much larger financial collapse in the United States. “The U.S. banking system is on the verge of a much bigger collapse than 2008. Banks own long-term paper at extremely low-interest rates,” Schiff stated. He continued:
They can’t compete with short-term Treasuries. Mass withdrawals from depositors seeking higher yields will result in a wave of bank failures.
Craft Ventures executive David Sacks took to Twitter, calling on Powell to intervene and prevent a possible contagion. “Where is Powell? Where is Yellen? Stop this crisis NOW,” Sacks tweeted. “Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday’s opening, or there will be contagion and the crisis will spread.”
Billionaire and Galaxy Digital founder Mike Novogratz also weighed in, expressing surprise that the Fed would let depositors lose money in Silicon Valley Bank. “Are all banks going to be treated like hedge funds? Seems like a policy mistake,” Novogratz stated. Shapeshift founder Erik Voorhees ridiculed the call for Fed intervention on Twitter, stating, “Fiat is fragile.”
SVB’s issues have impacted the crypto economy, particularly the stablecoin economy backed by fiat reserves. Circle disclosed that it had $3.3 billion of cash supporting usd coin (USDC) trapped in the bank, causing USDC to unpeg from the U.S. dollar parity. As of 10:30 a.m. on March 11, 2023, USDC is trading for $0.912 per unit. This unpegging has also led to five other stablecoins losing their pegs. Furthermore, on Saturday, Coinbase, Binance, and Crypto.com temporarily suspended USDC trades and conversions.
Tags in this story
Balance Sheet, Bank Failure, Bank Run, banking tech startups, Bankruptcy, collapse, contagion, deposits, Economist, FDIC, Fiat, Galaxy Digital, illogical inverted yield curve, interest rates, long-duration treasuries, long-term treasuries, Peter Schiff, policy mistake, Powell, rate hikes, Shapeshift, short-term Treasuries, Silicon Valley Bank, Silvergate Bank, speculators, subprime mortgages, SVB, SVB deposits, U.S. Federal Deposit Insurance Corporation, U.S. Federal Reserve, unqualified buyers, Venture Capital, Venture Capitalists, Withdrawals, Yellen
What do you think about the opinions surrounding the SVB failure? Share your thoughts in the comments section below.
Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Upcoming FOMC Meeting Is The Most Important Ever For Bitcoin – Watch Out For The Dot Plot
With the Bitcoin price posting a small gain of over 1.5% over the last seven days, the market is in for a blockbuster next week.
The release of the Consumer Price Index (CPI) on December 13, Tuesday at 08:30 AM ET, will once again be “the most important CPI ever”.
Just one day later, on December 14, Wednesday at 2:00 PM ET, the final Federal Open Market Committee (FOMC) meeting of the year will take place. Remarkably, FED members will release their updated forecasts for inflation and interest rates (dot plot) at the meeting.
A Blockbuster Week
The dot plot is released only four times a year – in March, June, September, and December – and presents the FOMC’s economic projections, which look at GDP, unemployment rates, and inflation for the coming months as well as over the longer term.
Within the dot plot, each member of the Committee publishes its view of potential interest rates over the longer term.
For investors, this is extremely useful information as it allows market participants to see if the consensus path for longer-term interest rates is changing.
The markets, as well as Bitcoin investors, will therefore be eagerly watching the inflation forecasts for next year, as well as the interest rate expectations for 2023 and 2024.
As economic journalist Colby Smith wrote in November, the September dot plot showed most officials favored a slowdown to 50 basis points in December.
The question for next week will be whether the Fed, led by Powell, will put into play a slower rate hike pace of 25 basis points (bps) or even a pivot.
The Fed introduced the notion of slowing down the pace of hikes in July and the September dot plot showed support from most officials for a downshift to 50bps in December. The question today is how far Powell goes to ratify that move https://t.co/Pn8n0lh4kZ @FinancialTimes pic.twitter.com/62XOqMlm3T
— Colby Smith (@colbyLsmith) November 2, 2022
A Year-End Rally for Bitcoin?
These two events could be the “last remaining hurdles” for a year-end rally for Bitcoin, QCP Capital wrote in an analysis.
However, a higher-than-expected consumer price index and a tighter stance by the Federal Reserve could derail that rally, as was seen in the April and August reversals.
On the other hand, further disinflation could lead many to seek a continuation of the rally through the end of the year, according to QCP Capital’s analysis. It goes on to say that the question markets now face is where inflation will bottom.
Even if 2% inflation is out of reach next year, will it fall low enough such that the Fed will have room to cut rates while keeping real rates positive?
Therefore, one key market theme for next year will be the shift from ‘peak inflation’ to ‘trough inflation’.
This is another reason why the dot plot is of paramount importance. As the last two releases show, Powell has stuck relatively strictly to projections regarding interest rates. Thus, the dot plot could reveal some insights into Powell’s thoughts about a pivot.
If the new data matches CPI expectations, it would be the fifth consecutive monthly decline. After peaking at 9.1% YoY in June. Next week’s reading could be even the lowest since January.
Will Powell Follow His Words
Given Powell’s recent comments to the Brookings Institute on November 30, it is also likely that the FED will stick to the script and raise the policy rate by only 50 basis points to 4.5%, reinforcing bullish sentiment in the market.
If the CPI even comes in below expectations, markets could frontrun the Fed’s decision and trigger an end-of-year rally. In any case, next week will provide blockbuster volatility in the Bitcoin and crypto markets.
Investors should pay close attention to the release of the FED’s dot plot.
At press time, Bitcoin was trading at $17,228, showing signs of strength ahead of the FOMC meeting.
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