MacroSlate Weekly: Bitcoin shines through banking failures, bailouts


Bitcoin leads the pack with a 12% gain this week, as further fallout occurs from the banking sector

Cover art/illustration via CryptoSlate

Macro Highlights

  • U.S inflation is too high for rate relief but mostly in line with expectations
  • ECB raised a further 50bps taking their deposit facility rate to 3%
  • Silicon Valley Bank files for chapter 11 bankruptcy
  • Credit Suisse and First Republic Bank continue to be provided with liquidity
  • Fed initiated stealth QE as balance sheet grows

Bitcoin Highlights

Stealth QE and bailouts

Stealth bailouts

Credit Suisse grabbed a liquidity lifeline thrown by the Swiss National Bank and borrowed up to 50 billion CHF, the equivalent of 6.25% of the Swiss GDP.  Credit Suisse’s share price has tanked roughly 20% this week while its default swaps continue to blow out.

1 year CDS: (Source: Bloomberg)

It’s not just Credit Suisse who were provided a lifeline; First Republic Bank’s (FRB) share price has dropped 78% in the past month. News was announced that 11 big banks were helping FRB as they pledged $30 billion. However, the stock continued to slide into Friday’s session.

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$30 B Deposits: (Source: Charlie Bilello)

Stealth QE

The fed balance sheet has increased by over $300 billion this week, which has jumped to $8.69 trillion, wiping out half the quantitative tightening the fed has been doing for the past year.

The increase in the balance sheet is from the program BTFP; in layman’s terms, this allows institutions to swap devalued assets for full-value cash. In addition, the fed’s discount window went parabolic to $148 billion this week, the highest level since 2008. Again, in layman’s terms, distressed banks call for fed liquidity.

Balance sheet growth

  • Approximately +$148.3 billion – net discount window borrowing.
  • Approximately, +$11.9 billion – the new Bank Term Funding Program

Subtotal: $160.2 billion

  • Approximately +$142.8 billion – borrowing for banks seized by FDIC Total:

This totals = $303 billion

Total assets Fed Balance Sheet: (Source: FRED)

ECB hikes 50bps ignores forward guidance

ECB hiked 50bps for the third consecutive session, increasing its deposit facility rate to 3%. Just six months ago, the deposit rate was at 0. Lagarde and the ECB remain firm in their “commitment to fight inflation.”, which is “projected too high for too long.”

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Forward guidance was removed, and no understanding of future moves, instead reiterated, “the elevated level of uncertainty reinforces the importance of a data-dependent approach”.

All eyes on the FOMC next week

The next FOMC meeting is on March 22, and markets are expecting a 25bps rate hike, and assuming nothing else major breaks, I think we will get it. After that, it’s anyone’s guess for the future path of the fed funds.

Powell goes into the meeting with a massive choice in either trying to contain inflation or saving a fragile financial system.

Fed Funds: (Source: CME fed watch tool)

Posted In: Macro

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Author: James Van Straten

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