Bitcoin and Gold Thrive Amidst Banking Stress
It has been a bumpy ride for the financial system lately, but the good news is that its digital gold counterpart is making a resurgence.
At the time, Bitcoin is hovering around the $25,000 price mark, while gold is also benefiting from the current banking stress.
Despite the US government guaranteeing the balances of Silicon Valley Bank and Signature Bank, the banking sector remains under considerable strain.
Stress Levels in Banks Hit a New High
The FRA-OIS spread, which measures the cost of borrowing US dollars between banks, has skyrocketed due to recent issues in the banking system.
This stress indicator has hit its highest level since March 2020. The interbank lending market is vital in maintaining the liquidity needs of banks.
When this market fails to function and borrowing money from each other becomes expensive, it poses a significant threat to the financial system.
While the situation is not as severe as the 2008 financial crisis, it is still potentially dangerous. Bitcoin, which has never experienced a financial crisis, may have to wait for its first one.
The high FRA-OIS spread suggests that the Federal Reserve should take a pause, strengthening the argument for a halt in interest rate increases.
A pause would mean that the Federal Reserve will not raise interest rates, potentially leading to Bitcoin continuing its current rally. Therefore, the banking stress is leading to an increase in assets such as Bitcoin and gold.
Bitcoin and Gold are Safe Havens
Bitcoin and gold both rely on their scarcity, and in the event of the US government printing more dollars to keep the system afloat, these assets will become more attractive to investors.
The stress in the banks is causing an increase in the value of Bitcoin and gold as investors look for safe havens to secure their investments.
In conclusion, while Bitcoin has had a tough few weeks, it is not alone in the current banking turmoil. Gold is also experiencing a resurgence, and both assets are benefiting from the stress in the financial system.
As investors continue to search for safe havens, Bitcoin and gold will remain attractive options due to their scarcity and reliability.