Bitcoin
market cap added $200 billion or 65% since the beginning of 2023, while the S&P
500 broad market index gained 2.5%. Banking troubles inspired crypto
enthusiasts, as some think that investors could seek shelter in crypto assets.
That is absurd. No fund manager would ever sell risky stocks to buy even more
risky cryptocurrencies.
However,
the stock market in the United States needs to be monitored as the threat of
expanding banking troubles has not disappeared yet. Smaller regional banks are
in the risk zone, while large banking institutions, like JPMorgan Chase, the Bank
of America, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs are also suffering,
as they lost nearly $100 billion in market cap. The market cap of the U.S.
banking system is $2 trillion less than it should be according to the overall
balance value of the assets until maturity and credit portfolios.
Silicon
Valley Bank (SVB) was not even the most troubled as 10% of American banks have
even bigger paper losses and lower market cap. The main reason why depositors ran
was the disproportionally high share of unsecured funding together with losses.
More than 190 banking organisations in the United States could be in serious trouble
if 59% of their depositors decide to withdraw their funds. This is around $300
billion. The recent drop in the value of banking assets made banks extremely
vulnerable to depositor’s panic.
With this being
said, the crowd is not yet ready to seek serious alternatives in
cryptocurrencies. Even Bitcoin is a weak alternative after FTX crypto exchange
scandal collapse. The funding is also expensive as interest rates are high.
This makes speculative operations riskier than before the collapse of SVB.
Furthermore, the recent macroeconomic data in the U.S. indicates more room for
monetary tightening.
Meanwhile,
the sentiment in risky assets should be monitored closely to be ready for the
crypto assets’ prices to reverse down.