‘Bitcoin smells trouble’ as banks are stressed and ‘yields are puking’ - Strike CEO
News Summary
Several regional banks in the United States are experiencing renewed stress, despite having strengthened their finances after the 2023 banking crisis. Strike CEO Jack Mallers believes Bitcoin (BTC) is accurately pricing in an impending liquidity crisis, anticipating that the Federal Reserve's inevitable response will drive BTC prices higher. Mallers asserts that Bitcoin is "most sensitive to liquidity" and acts as a "truth machine," signaling trouble first when banks are stressed and yields are plummeting. He expects the U.S. will be forced to inject liquidity and print a significant amount of money, at which point Bitcoin will be the first to move and outperform all other assets. The article highlights that the March 2023 regional bank crisis was never truly resolved, merely "papered over" with government bailouts and acquisitions, which fostered moral hazard and excessive risk-taking by banks. Wall Street is increasingly concerned about the health of regional banks due to write-offs of bad commercial loans, exemplified by the stock crashes of Zions Bank and Western Alliance. The U.S. banking system is seen as vulnerable, sustained by implicit government guarantees rather than sound financial practices. Despite Mallers' bullish outlook, Bitcoin recently dropped to a four-month low of $103,850, recovering slightly to $107,000, but remains over 15% down from its all-time high. BitMEX co-founder Arthur Hayes suggests that if the regional banking wobble escalates to a 2023-like bailout, investors should be ready to "go shopping" for Bitcoin.
Background
In March 2023, the U.S. experienced a regional banking crisis, with the failures of several institutions including Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) responded swiftly, deploying emergency liquidity facilities (such as the Bank Term Funding Program, BTFP) and guaranteeing all deposits, including those exceeding the $250,000 limit, to stabilize the financial system and prevent broader contagion. While these interventions averted an immediate systemic collapse, they raised concerns about "moral hazard," where banks might take excessive risks believing the government will backstop them. Additionally, regional banks' exposure to commercial real estate loans and unrealized losses on long-duration assets dueured by rising interest rates have been persistent underlying vulnerabilities. Market confidence in these underlying issues has never been fully restored.
In-Depth AI Insights
What are the underlying structural vulnerabilities persisting in the U.S. regional banking system, despite post-2023 'strengthening'? Is it merely a commercial loan problem? - The superficial write-offs of commercial loans may be a trigger, but the deeper cause lies in the 'papering over' rather than fundamental resolution of structural issues following the 2023 crisis. The Fed's emergency measures, such as the BTFP and full deposit guarantees, while averting immediate collapse, created moral hazard, encouraging banks to continue taking high risks without being forced into deep balance sheet restructuring. - Regional banks' excessive exposure to the Commercial Real Estate (CRE) market is a long-standing vulnerability. Under the Trump administration, economic policies might have stimulated over-borrowing in certain sectors, and with sustained high-interest rates, rising CRE defaults are an inevitable outcome. Many regional banks' profitability and capital buffers may be insufficient to absorb these ongoing losses. - Furthermore, uncertainty surrounding the Fed's future monetary policy path exacerbates market tensions. If the Fed is forced to cut rates in response to an economic slowdown or banking crisis, this could be perceived as a signal of deteriorating economic fundamentals rather than a mere liquidity injection, triggering broader market concerns. Is the logic of Bitcoin being considered a 'safe haven' or 'hedge' in this scenario valid? What do its current price fluctuations indicate? - Strike CEO Mallers' view represents a branch of the 'digital gold' narrative, arguing that Bitcoin, as a decentralized, inflation-resistant asset, can preserve or even increase in value during fiat liquidity crises or central bank money printing. Theoretically, if central banks are forced to 'print money to save the market,' diluting the dollar's purchasing power, Bitcoin's scarcity could indeed benefit it. - However, Bitcoin's current price decline (hitting a four-month low) suggests that in the initial stages of an actual crisis, it is still largely perceived by the market as a risk asset, not an immediate safe haven. Global macroeconomic uncertainty, coupled with expectations that the Fed might continue to maintain high-interest rates to combat inflation, could lead investors to sell off risk assets. - This contradiction reflects Bitcoin's dual nature as both a 'safe haven' and 'risk' asset. In the initial phase of market panic, liquidity tightening often leads to a sell-off of all risk assets (including cryptocurrencies) to cover margin calls or raise cash; only when the expectation of 'print money to save the market' truly becomes policy reality and fiat currency trust erodes, might Bitcoin's 'safe haven' properties fully manifest. What are the potential policy choices and long-term implications for the U.S. government and the Federal Reserve if regional banking stress resurfaces in 2025? - Under the Trump administration, the government and the Federal Reserve would likely face a dilemma. Political pressure would favor avoiding bank failures, especially post-election cycle. Therefore, 'papering over' types of bailouts, similar to 2023 (e.g., expanded deposit guarantees, emergency liquidity provisions), remain highly probable options to maintain short-term financial stability and market confidence. - In the long run, such continuous bailouts would further entrench moral hazard and could lead to a proliferation of 'zombie banks'—institutions that should have failed but are kept alive by government support, hindering efficient market clearing. This would not only exacerbate fiscal burdens but also potentially distort capital allocation and impede long-term healthy economic development. - Given ongoing inflation concerns, the Fed might be more cautious in injecting liquidity, attempting to use more targeted tools rather than broad quantitative easing. However, it may ultimately be difficult to avoid putting pressure on the dollar's purchasing power. This would prompt some institutions and high-net-worth investors to re-evaluate asset allocation, seeking value stores outside the dollar, thereby further driving demand for alternative assets like gold and Bitcoin.