Banking Crash and Bitcoin Trading Spotlight
A new empowered banking crisis in the US sparked the run from what I know. People, maybe institutions, seem to flee from the potential of losing their money. Bitcoin seems like an obvious haven, as you are responsible for your own funds.
First a small summarization to the 2008 Banking Collapse, followed by a short part of the recent banking crisis and lastly a spotlight on Bitcoin trading.
2008 Banking Crash
The banking crash of 2008 was a global financial crisis that began in the United States and spread to other parts of the world. The crisis was caused by a combination of factors, including the housing market bubble, risky lending practices by banks, and the widespread use of complex financial instruments such as derivatives.
The U.S. Federal Reserve had been gradually raising interest rates in the years leading up to the crisis, which made it more difficult for people to make mortgage payments on their homes. As a result, many homeowners defaulted on their mortgages, leading to a wave of foreclosures and a decline in the value of mortgage-backed securities held by banks and other financial institutions. This had a significant impact on banks and financial institutions, many of which had invested heavily in these instruments.
As the crisis deepened, many banks found themselves in serious financial trouble, with some even facing bankruptcy. In response, governments and central banks around the world implemented a series of measures aimed at stabilizing the financial system and preventing a total collapse.
However, despite these efforts, many normal people still suffered significant losses as a result of the banking crash. Many individuals and families lost their homes to foreclosure, while others saw their savings and retirement funds wiped out as the value of stocks and other investments plummeted.
The image below shows the bear market following the 2008 financial crisis, where the $SPY plummeted from around $125 to about $53, which is a decrease in price of about 58%.
In addition, the crisis had a wider impact on the global economy, with many businesses struggling to stay afloat and unemployment rates rising sharply in many countries. Overall, the banking crash of 2008 was a traumatic event that had a profound impact on the lives of millions of people around the world.
2023 Banking Crash
The recent banking crisis started as the Silicon Valley Bank (SVB) was closed on the 10th of March this year. Similar to the 2008 Banking crisis rising interest rates played a role in the shutdown of the SVB. The Silicon Valley Bank collapse was the second biggest bank fiasco in US banking history, as clients tried to withdraw about $42 billion worth of assets.
As a reason for price increases in technology stocks SVB increased its balance sheet from around $50 billion in 2020 to about $200 billion at the start of 2022. The newly acquired cash flow was mostly used to buy long term bonds with low interest rates. As the US government went on a rate hike interest rates skyrocketed, which can be fine when banks hold on to these bonds for a longer time period.
The problem here is that the book value of those bonds are higher than the actual market value, which can be a problem if you need liquidity fast, which was the case in SVB’s case, as $42 billion were requested for withdrawal.
This banking drama led to a decrease in a lot of banking stocks, which erased billions of the banking stocks market caps and probably also billions of people‘s money that was or is in banking stocks. The stock price of the SVB plummeted in a day and was halted afterwards. The chart looks like what the crypto community likes to call a rug pull.
Other banking stocks were also drawn down, making their stock prices look like a waterfall.
From around $150 to around $20 in a matter of days. We will see if the U.S. banking crisis worsens in the coming weeks and becomes as big as the 2008 crisis that put the world’s financial systems at risk.
Bitcoin Trading Spotlight
Today‘s crypto trading spotlight deals with the cryptocurrency Bitcoin which has made big moves lately. We all have seen the explosive rise of BTC from around $20k to almost $28k at which point it topped out so far.
I think the price development will depend on the further impact of the US banking drama and will be volatile in the next few weeks. Explosive moves of Bitcoin are not uncommon and can even increase in times of market uncertainty.
I often underestimate the power with which Bitcoin makes its runs, but from $20k to $28k in about a week is a pretty steep and massive rise. I will look for a short term drop and consolidation somewhere above the $25k range before a continued rise.
I will look to establish a Short trade as long as BTC keeps making lower highs on the hourly chart. If it breaks this pattern I will be really cautious and cut the position as soon as I see any bullish trend forming.
I hope you have a nice Sunday, take care!
Niklas
This is not financial advice and is for educational purposes only
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