FDIC Says 63 Banks Faces Collapse, Bitcoin Price To Fall or Rise?

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As a researcher with extensive experience in the financial sector, I find the recent reports from the Federal Deposit Insurance Corporation (FDIC) and the Institute for Supply Management (ISM) concerning. The FDIC’s report that 63 banks in the US have $517 billion in unrealized losses and are at risk of insolvency is a significant red flag. This comes amidst rising funding costs, lower asset yields, and the impact of higher mortgage rates. These conditions can potentially shake the stability of the financial sector and the broader economy.

As a crypto investor, I’ve kept a close eye on the latest developments in the traditional banking sector. The Federal Deposit Insurance Corporation (FDIC) recently disclosed that unrealized losses in the US banking system amounted to an staggering $517 billion. This revelation has raised red flags, as FDIC identified 63 banks teetering on the brink of insolvency. These findings have sparked growing concerns about the resilience of the US economy and financial sector at large.

As an analyst, I’d interpret the ISM Manufacturing PMI coming in at 48.7 instead of the anticipated 49.6 as a more substantial contraction than expected in the manufacturing sector. This unexpectedly weak data increases the probability that the U.S. Federal Reserve will consider reducing interest rates. Bitcoin‘s price exceeding $70,000 can be attributed to this heightened likelihood of rate cuts.

FDIC Reports 63 Banks on Brink of Insolvency

Banks and businesses in the United States have been grappling with intense strain due to increased interest rates and postponed rate reductions. The termination of the Federal Reserve’s Bank Term Funding Program on March 11 has further amplified risks for banks, particularly regional institutions.

In Q1 2024, the FDIC reported that 63 US banks face significant risk due to their collective $517 billion in unrealized losses. This situation unfolded amid increasing funding costs, decreasing asset yields, and the repercussions of higher mortgage rates. The escalating worries could potentially undermine the banking sector’s stability and, in turn, have far-reaching implications for the economy as a whole.

In the first quarter, the FDIC noted a significant increase of $39 billion in unrealized losses on securities classified as available-for-sale and held-to-maturity, bringing the total to $517 billion. This escalation can be attributed to larger unrealized losses on residential mortgage-backed securities due to the upward trend in mortgage rates during this period. For nine successive quarters, the banking sector has experienced unusually high unrealized losses since the U.S. Federal Reserve initiated interest rate hikes in 2022.

Will Bitcoin Price Rise Similar to Last Time?

Bitcoins and cryptocurrencies may experience significant price growth due to potential bank runs. Yet, the Federal Reserve and the Treasury Department have prepared contingency plans for this election year. Recent Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data suggest that inflation is gradually decreasing. As a result, the Federal Reserve is anticipated to reduce interest rates in response, which could further boost crypto market momentum.

At present, the Federal Reserve’s swap operations indicate a probable sole interest rate reduction in 2023. However, if favorable data emerges over the next few months, the Federal Reserve may shift its monetary policy stance completely by September, marking a pivot towards more accommodative measures.

As a researcher, I’ve noticed that the US dollar index (DXY) has experienced a decline recently, dipping below the 105 mark to reach a low of 104.1 at present. This downturn can be attributed to the easing inflation and labor market conditions in the United States. Simultaneously, the US 10-year Treasury yield has followed suit, hitting a two-week low of 4.37%. These developments suggest that the US economy may be losing its robustness, bolstering the argument for multiple interest rate reductions throughout the year.

With Bitcoin going in the reverse direction of the DXY index and U.S. Treasury yields, the market tension has lessened. According to the CME Fed Funds Watch, there’s now a 52.6% probability that the Federal Reserve will reduce interest rates by 0.25 percentage points in September.

As an analyst, I’ve observed that Bitcoin’s price dipped by approximately 0.5% today, landing at the current figure of $68,650. The lowest and highest points within the last 24 hours were registered at $68,577 and $70,230 respectively. Notably, trading volume has experienced a significant surge of almost 20%, suggesting heightened activity among investors.

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2024-06-04 12:53