April 28, 2023
Banks in a Tailspin Means A Huge Opportunity for Crypto
Dear Subscriber,
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| By Juan Villaverde & Alex Benfield |
Although it feels like an eternity, Silicon Valley Bank and Signature Bank only collapsed a little over a month ago.
And now First Republic Bank is teetering on the edge of the abyss.
And the culprits aren’t new: a humongous mortgage and bond portfolio snatched during the zero-interest rate era, combined with the Federal Reserve’s frantic rate raising rampage.
Currently, savers can rake in a sweet 4% to 5% interest on money market funds. And it is child’s play to move money from a bank account to these treasure troves.
And that’s nothing compared to the yield you can find in DeFi, even when using just stablecoins pegged to the U.S. dollar! My colleague Chris Coney says the most conservative yield farming position with the lowest risk exposure his Crypto Yield Hunter Members are in generates roughly 18% APY.
To learn more about how he finds these opportunities in any crypto market, I suggest you reserve your seat for his FREE Superyield Conference, to be held this coming Tuesday, May 2, at 2 p.m. Eastern.
Point is, if the banks fail to hike their deposit rates, customers will vanish like Houdini.
Spoiler alert: They are already disappearing faster than a magician’s assistant.
Now, some commentators have hilariously claimed the banking crisis is over because no banks have failed in five weeks. The harsh reality is that crises take months to unfold, and the weakness in the banks has been brewing like a pot of strong coffee for a while.
It is a systemic crisis impacting the entire global financial system … and now the water is boiling over.
Buckle up, folks, because we are smack dab in the middle of the largest debt bubble in history.
The world of traditional finance is taped together by near-zero interest rates and central banks’ aggressive money printing antics. Remove either of these crutches, and we will see a parade of bank failures and imploding pension fund systems.
It is that simple. And yet, here we are.
If central banks continue to obsess over fighting inflation with “higher for longer” interest rates, this downward spiral is bound to carry on.
Eventually, they will be forced to U-turn and resume their money printing extravaganza.
Now, markets are already hip to this outcome because the signs are all there: the yield curve is inverted, U.S. Treasurys are rallying, gold is soaring and crypto is moon-bound.
It is clear that central banks’ new bond lending programs are laughably inadequate. Time for a new plan, folks.
Sooner than later, multiple financial fiascos will force central banks to execute a massive reversal of their rate hiking policies and unleash a tsunami of liquidity.
When that day comes, you will thank yourself for being ahead of the game and hopping on the Bitcoin (BTC, “A-”) train at today’s bargain prices.
You do not want to let this once-in-a-lifetime opportunity fade into the rearview mirror.
Now, I’ll hand the mic over to Alex for the near-term picture ...
Why It’s Unwise to Bet Against Bitcoin
I couldn’t agree more with Juan regarding the situation. Especially when it comes to how Bitcoin fits into the picture.
In Wednesday’s issue, I outlined the dramatic downfall of First Republic Bank. Since then, the situation has only worsened.
FRC shares now trade at a low of $3.20 … a devastating decrease from $121 at the beginning of 2023.
Talk about a rough year!
When bank stocks begin to resemble small-cap altcoins, it is a clear indicator of significant problems in the banking sector and potentially broader economic concerns.
First Republic — which started the year as the 14th largest bank in the U.S. — saw its shares plummet by over 97% year to date. This is a decline rarely witnessed in the TradFi world.
And BitMEX co-founder and CIO Arthur Hayes shares my sentiments, as well as Juan’s.
He argues that unless a larger, deep-pocketed bank is willing to rescue First Republic and assume its array of challenges, the most probable outcome would be an expansion of the Bank Term Funding Program.
This expansion would lead to even more money printing to facilitate loan swaps. As we all know, Bitcoin thrives on the “brrr” of the money printer.
Overall, the current financial landscape is marked by growing uncertainty. Many banks are grappling with liquidity issues due to poor management of interest rate risk.
As a result, investors are on the lookout for alternative investment opportunities to safeguard their wealth.
Thankfully, we know of an alternative store of value that was built to withstand the chaos of the TradFi system: Bitcoin.
And now it is time for it to take center stage.
Currently, BTC is trading just above $29,000 — up from this Monday’s low of $27,000. Although Bitcoin has been struggling to flip the $30,000 level into support, it is still in a clear uptrend.
As long as that uptrend persists, it is unwise to bet against the cryptocurrency market leader.
Regardless, as the weekend unfolds, we will be watching to make sure BTC holds the $27,000 level as support. But we are hoping it makes another run at $30,000.
For now, Bitcoin’s 200-week moving average currently sits at about $26,000 and should act as strong support if the market breaks down.
In the coming week, the Federal Open Market Committee is set to reveal whether interest rates will increase and by how much.
Hiking interest rates will only aggravate the existing challenges within the banking sector. But the Fed has emphasized that curbing inflation is its primary objective.
Undoubtedly, this is quite a dilemma.
If the banking crisis persists or worsens, its impact will likely spread to asset markets and may even trigger a full-scale recession and credit crunch. That is not an outcome we would like to see, and neither does the Fed.
Moving forward, I expect an expansion of the Bank Term Funding Program and additional money printing, regardless of what happens to the interest rate.
At the end of the day, we already know the effect that will have on the crypto market. All we have to do now is remain patient.
Best,
Juan & Alex
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