Finmex: Bitcoin Is Losing Momentum as Liquidity Pressure Is Mounting


The major cryptocurrency Bitcoin is losing momentum as its prices are seen to be close to their top for this year.

Bitcoin prices surged in the middle of March amid a raging banking crisis in the United States and Europe. The market cap of Bitcoin has jumped by 65% to over $536 billion since the beginning of 2023, commented Martin Marsovsky, chief manager of Finmex Academy.

The collapse of the start-up host in California, Silicon Valley Bank, happened because it failed to sustain its business due to a lack of liquidity.

Soon after the crypto friendly Signature Bank was shut down by New York state regulators followed by Silvergate Capital Bank.

Even after the dust is beginning to settle on this situation, there are still some major questions that need to be answered related to these shut downs. Federal Deposit Insurance Corporation (FDIC) announced that Flagstar Bank would acquire the assets of Signature Bank with the exception of $4 billion in crypto-related deposits.

FDIC said it will dispose of these assets on its own, while it was rumoured that potential bidders had asked
to buy the bank’s crypto assets, but were told they could not bid for this part of Signature’s business.

Federal Home Loan Bank of San Francisco has allegedly forced Silvergate Capital Bank to repay advances on $4.3 billion loans that the Federal Home Loan Banks (FHLB) supplied to the bank in 2022. Even though Silvergate reported it had to accelerate sales of securities to repay advances from FHLB, the latter declined any requests from Silvergate to do so, saying that “Silvergate made their determination to prepay their outstanding advances
based on their own assessment of their position.”

Both banks experienced major outflows before they shutdown. Major American banks are not willing to provide services to crypto firms that are directly engaged with tokens. So, there could be a bigger story behind the collapse of these crypto-friendly institutions.

It could be an echo from the Securities and Exchange Commission’s (SEC) raid over crypto firms that were engaged in stablecoin issuance like Paxos that are the backbone for the crypto industry as they allow people to trade in and out of different coins quickly without having to convert in and out of fiat currency.

Many crypto companies have reportedly moved offshore, outside U.S. jurisdiction as it has become difficult for them to access banking services. Some were bombarding crypto-friendly Suisse banks to resume banking operations with them.

The major point for a possible reversal in the risky assets rally was made by Treasury

Secretary Janet Yellen, who rolled out an expansion of deposit insurance above $250,000.

That fueled another sell-off of U.S. small bank shares. This testament came as a surprise after Federal Reserve (Fed) Chairman, Jerome Powell, assuranced that all deposits are “safe” because of the actions made by policymakers.

U.S. stock market volatility remains elevated amid fears of possible troubles in smaller U.S. banks. The Fed swiftly led a survey that revealed more than 190 banking organisations in the United States could be in serious trouble if 59% of their depositors decide to withdraw their funds, which account to $300 billion.

Any further spin offs of the banking run may dump bitcoin prices very rapidly. Lower appetite for risky assets would eventually lead crypto assets to deteriorate. Any hopes for a U-Turn in the Fed’s monetary policy could only be justified after a dramatic sell-off of stocks and other risky assets, which would eventually force the American watchdog to retreat and lower its interest rates.

Meanwhile, Bitcoin prices may roll back to $20,000-21,000 per coin. Find out about training at Finmex Academy

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