Why The Bank Collapses’ Create A Perfect Storm For Bitcoin

Hey LinkedIn, 

Last week’s insight finished expecting more government intervention.

Well, that was quick...

The FDIC (the government body that insurers American banks) intervened to take control and sell First Republic Bank to JPMorgan as fears grew other regional banks could meet a similar fate.

I dive into what happened, how more pain ahead is likely and why it matters for crypto. ?? 

Where do we stand today? 

With JPMorgan absorbing First Republic Bank, it marks the second-biggest bank failure in U.S. history.

Sound familiar?

That’s because only one month ago, the collapse of Silicon Valley Bank took that spot.

We’ve seen three of the most significant bank failures in U.S. history this year, and more could be on the way.

Is it over?

It's likely not the end to the banking crisis—a view shared by JPMorgan Chase CEO Jamie Dimon. There's still sustained pressure on U.S. regional banks as their stock values plummet with concerns others may be next.

• As of writing, PacWest is exploring its options.

“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” - Jamie Dimon.

A deterioration of the macro environment impacts crypto in a few ways.

1. Attempts to scapegoat crypto as a significant cause of financial instability fades. There's considerable instability outside of crypto and in the broader economy. 
2. If more banks bail, the piggybank needs refilling. As explored in the last insight, the FDIC piggybank only has ~$100-$116B left (taking a ~$35B hit from all the collapses). If we see more failures, they may be forced into a situation where more deposits are guaranteed, and more money needs to be made available to top up the fund.
3. Let's not fade the upcoming U.S. debt ceiling. The U.S. continues to increase debt, which needs to be serviced, and the ceiling needs to increase next month.
4. Could the rate increase signal the current hike cycle is ending? The Fed raised rates by 25 bps as the crisis continues. Are we going to see rates lower next year?

This is where Bitcoin comes in.

• Rate hikes possibly topping out
• The halving 1 year away
• Banks collapsing
• Possible government intervention to fund the deficit or bail out the markets

Is this setting up the perfect storm for Bitcoin in the medium term?

Rise of the nation-state involved in Bitcoin

What happened? The South East Asian Kingdom of Bhutan confirmed they've been mining Bitcoin for the last few years using cheap excess hydro energy. 

Why does it matter to you? We may be witnessing the rise of countries involved in Bitcoin, with Russian state-sponsored companies reportedly actively mining BTC. It marks a whole new dimension of adoption…Who else is secretly mining that we don’t know about?

DCG risks default as huge debt comes due

What happened? According to Gemini, Digital Currency Group (DCG) risks defaulting on its $630M debt obligations if a settlement cannot be reached. Bankrupt lender Genesis (owned by DCG) initiated a 30-day mediation process for the ~$900M (of a total of $1.67B) owed. If DCG cannot pay or restructure its debt, it risks defaulting.

Why does it matter to you? DCG is one of the largest companies in the space. If there’s trouble paying down the large amount owed, it could be a negative catalyst for the market.

Hong Kong opens to crypto firms; U.S continues attack on miners

What happened? Hong Kong clarified there is no ban on banks providing services to crypto firms. It starkly contrasts the U.S., with the White House proposing a new 30% tax on miners.

Why does it matter to you? A positive approach to crypto could spark significant new investment from Chinese users. The proposed U.S. tax could threaten the sustainability of mining in the U.S. but is being opposed by a presidential candidate.

Thanks for reading the Weekly Shift. I hope you've enjoyed it, and I look forward to seeing you next week!

I'd love to hear any feedback; please send me an email!

Regards,

Ben Simpson

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