Bitcoin’s Emergence as a Viable Alternative to Traditional Financial Systems
The Banking Crisis in the US Contributed to the Fall of First Republic Bank
Three sources familiar with the situation have reported that U.S. officials are engaged in urgent discussions to rescue First Republic Bank. Private-sector efforts led by the bank’s advisers have yet to reach a deal according to Reuters.
The Federal Deposit Insurance Corporation (FDIC), the Treasury Department, and the Federal Reserve are among the government bodies that have started to orchestrate meetings with financial companies in recent days to put together a lifeline for the troubled lender. The government’s involvement is helping to bring more parties, including banks and private equity firms, to the negotiating table.
It is unclear whether the U.S. government is considering participating in a private-sector rescue of First Republic. However, the government’s engagement has emboldened First Republic executives as they scramble to put together a deal that would avoid a takeover by U.S. regulators.
Bitcoin gaining momentum
First Republic Bank became the epicenter of the U.S. regional banking crisis in March after the wealthy clients it courted to fuel its breakneck growth started withdrawing deposits and left the bank reeling. Many are linking the latest pump in Bitcoin’s price to the growing concerns around First Republic Bank, whose shares plunged by around 50% on April 25th.
The crypto-friendly bank initially encountered difficulties in early March, prompting 11 of the largest US banking institutions, such as J.P. Morgan and Bank of America Corp., to deposit $30 billion with the troubled bank. On March 26th, Bloomberg disclosed that US authorities were considering establishing an emergency lending facility to help the bank address its balance sheet’s “structural challenges.”
During its April 23rd first-quarter earnings call, First Republic revealed that total deposits had nosedived by over $100 billion. The bank announced plans to “pursue strategic options” to fortify its financial position as soon as possible. It appears that the bank plans to reduce expenses through measures such as cutting executive salaries, downsizing office leases, and laying off an estimated 20% to 25% of its workforce in Q2.
Bitcoin’s Limited Supply and High Demand Fuel its Appeal as a Store of Value
The soft decoupling between Bitcoin and the traditional financial system is growing, and digital assets are proving a valid point. It is becoming evident that the correlation between Bitcoin and the S&P and Nasdaq is going to start becoming less prominent.