Why do banks’ troubles drive Bitcoin price up?

Why do banks’ troubles drive Bitcoin price up?

Isn’t it remarkable how the banking crisis became one of Bitcoin’s biggest upward catalysts this year?

📈 After the SVB collapse that triggered a 40% rally in March, this Monday’s news about the dire situation of First Republic Bank pushed $BTC price up 10% more.

First Republic troubles do not come as a surprise: as many other banks, it loaded up on low-yielding bonds in the previous years, only to find their value dropping dramatically when the Fed started to increase interest rates.

📉 The bank’s shares plummeted -88% in March, but this Monday showed that things could get worse: after a new disclosure revealing how low the deposits have fallen, the shares have lost an additional -60%.
The documents have shown that over $100 billion of deposits were withdrawn in Q1 2023 💸, vs $176 bn the bank had last year + a $30 bn lifeline in combined deposits received from 4 biggest banks in March.

But why do banks’ problems have such a stimulating effect on Bitcoin price?

Let’s see:

👉 they confirm the key narrative of Bitcoin: not your keys, not your money;

👉 they inspire mistrust in the banking system: why on Earth were the bankers buying long-term bonds in 2020, when it was clear that money printing would trigger inflation, which would trigger the rates’ hike?

👉 they are likely to prompt the Fed to step in and buy back those unfortunate bonds (like it did for SVB and Signature), and the new money printed for that purpose would contribute to the dollar’s debasement, fuelling the vicious circle,

👉 they can trigger federal agencies to consider a blanket coverage of all banks that are unable to pay their debtors (i.e. all fractional reserve banks), bringing the state and the money even closer together, with all the dangers for personal freedom it implies…

In other words: Bitcoin is increasingly traded as an alternative to the traditional banking system and the central banks’ (= governments’) monetary policy, both inextricably linked.

It does not mean that people are ready to abandon their banks and switch to Bitcoin wallets – this may not happen at all – but the increasing negative correlation between the banks’ health and Bitcoin price shows that the independent money narrative is gaining ground.

Bitcoin also confirms its value as a diversification asset: its correlation with S&P500 is only 0.07, with Nasdaq 0.29, while the correlation with Gold is on the rise at 0.57.