Could the recent bank failure lead to a Bitcoin and Gold rally?

With the second and third biggest collapse in US banking history happening in the same weekend and more than 120 regional banks asking the FDIC to secure all deposits for at least 2 years, people are starting to awaken to the idea of losing their hard-earned money to a falling banking system.

The collapse of Silicon Valley Bank and Signature Bank, with a combined market capitalization of around $20 billion and managing significant assets, has raised concerns about financial contagion. The failure of one institution can affect others, and panic withdrawals could destabilize other banks. The tech and innovation sectors, where these banks played a significant role, are particularly vulnerable to such risks. Policymakers must closely monitor the situation and mitigate the contagion risks, such as injecting liquidity and supporting affected depositors.

Did someone say liquidity injection?

While injecting liquidity into the financial system is not synonymous with printing money in a literal sense, there appears to be a strong correlation of almost 95% between the balance sheets of central banks and the movements of the S&P 500.

The Federal Reserve's emergency lending in response to the Silicon Valley Bank collapse has hit record levels, with Discount Window borrowing reaching an unprecedented high of $152.9 billion and a new banking lending facility providing $11.9 billion in lending. The Fed also extended $142.8 billion in support to the FDIC. These figures highlight the crucial role of the Fed in stabilizing the financial system during times of crisis.

Also as of today, Credit Suisse which had been struggling for the past years got bought by UBS at $0.25 per share under the direct supervision of the Swiss central bank. In light of this event, the European Central bank emphasizes the importance of the implementation of greater and more effective credit swap lines with the FED to prevent a Dollar crisis in the European Union. Also, credit swap lines will be up to use with other major central banks.

What does all of this mean for Crypto, stocks, and gold?

Two really important things to take into consideration when looking at this matter.

First of all fear or concerns regarding the traditional banking system may incentivize people to take their money out of banks and store it in safer places it could be cash under the mattress, gold, or Bitcoin cold storage. Which by itself is the natural way assets appreciate in value just by the willingness of people to acquire those assets thus creating higher demand which in term generates higher prices.

Secondly, the recent events may be a warning sign to the FED and other Central Banks regarding interest rate increases and the potential need for a more dovish stance to avoid a much bigger banking collapse. That said we will need to monitor attentively the FED and other central banks' plans of action in the next couple of weeks to be able to determine which path will be taken in that regard since we are also in a high inflation environment lowering interest rates isn't as straight forward as it may be in normal circumstances.

Bitcoin and Gold had exceptionally good weeks with Gold being up +10% getting closer to its all-time high of $2070 and Bitcoin recording its best weekly performance ever being up +28%.

Weekly Gold and Bitcoin charts per trading view.

Conclusion

Past performance doesn't indicate future performance but we might be looking at a potential uptrend its catalyzer being the risks regarding the current banking system in a high-interest rates environment.

Despite the high probability of an uptrend, It is possible to continue moving in a downtrend especially if the FED decides to let the smaller banks take the hit and keep interest rates high to fight inflation, in that case, we will have to take into consideration that our second point of argument for a bullish scenario may not be valid.

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