By Michael Scott
Bitcoin is leading other cryptos into a surprising rally following speculations that First Republic Bank is on the verge of joining financial institutions engulfed in the US banking crisis.
The uptrend experienced across the entire cryptocurrency industry triggered a 4.6% increase in the total market capitalization to realize $1.20 trillion. The sudden upswing is attributed to the deposit slump revealed by First Republic Bank (FRC). The news has sparked fears of the US confronting a new banking crisis.
Bitcoin Rallies as First Republic Bank Faces Collapse
At press time 11:42 UTC, Bitcoin is exchanging hands at $28955, 5.6% up in the last 24 hours, as illustrated by Coinmarketcap data. It leads other crypto assets into the green as investors rush to avert wealth loss. Speculators are admitting signs of possible bank failure, with the First Republic Bank’s shares plunging 50% on Wednesday April 26 to exchange hands at $8.10 at the New York Stock Exchange.
The chief researcher at Collective Shift indicates that bitcoin price rallied following the revelation by Charles Gasperino of Fox News Business of the imminent placement of First Republic Bank into receivership. The Australian-based crypto education center executive quoted Gasperino’s pronouncement that bankers within FRC anticipated bank placement into government-steered receivership.
Receivership involves an arrangement deployed to facilitate creditors’ recovering claims they anticipated potential default. The receivership is ideal for enabling the troubled FRC to avoid bankruptcy.
The recent crypto data analysis completed by Santiment indicated that Bitcoin has a weakening correlation with the S&P 500 index. The decoupling in movement arises from the spreading narrative placing Bitcoin as a crypto safe haven since the banking crisis struck and appears to gather steam.
First Republic Bank Crisis in March
FRC challenges traced to early March when several banking institutions led by Bank of America and JP Morgan committed a $30 billion deposit to steady the troubled bank. In particular, a Bloomberg report on March 26 indicated that the US authorities were weighing the viability of establishing an emergency lending facility. Its creation would enable FRC to shore up structural challenges inherent within the financial institution’s balance sheet.
Officials drawn from the US authorities dismissed the need to establish a rescue plan for FRC by declaring that its deposits were stabilizing. Unknown to the officials, First Republic was staring at the barrel of liquidity strain. Nevertheless, they considered the bank stable and not battling the severe run that necessitated the closure of Silicon Valley Bank.
US Authorities Downplayed Crisis Facing First Republic Bank
The reassurances offered by the US authorities seem incorrect, with the first quarter earnings released on April 23 indicating a plunge in the deposits. The Monday statement by the First Republic lamented the nosedive experienced by the banks with declining $100 billion.
The Monday briefing indicated that First Republic Bank would prioritize pursuing strategic options capable of reinforcing its financial health. The decision arose from realizing that revenue declined by 13% to $1.2 billion, eroding the net income by 32.9% to $269 million. A scrutiny of the balance sheet illustrated that the deposit declined by 35.5% to $104.5 billion.
Quarterly Report Reveals the Vulnerability of First Republic Bank
The First Republic Bank was noncommittal on the exact strategic options it would deploy to rightsize the balance sheet. The move is likely to minimize executive salaries and optimize office leases. It projects to lay off 20% to 25% of its staff by the second quarter.
With the First Republic on the verge of plunging into liquidity challenges, the crypto community fears the US financial institutions would reignite the banking crisis. The crypto enthusiasts point to the Silvergate Bank announcing the closure on March 8 following the run on its deposits.
The US banking industry would suffer a shocker with Silicon Valley Investment Bank shut by California’s Department of Financial Protection.
The US Treasury Secretary Janet Yellen would reiterate that the banking sector portrays robust and stable performance. In her April 21 address during the Financial Stability Oversight Council meeting, She added that the turmoil is negligible and that the country’s banking system has a solid capital base and liquidity position.
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