U.S. President Joe Biden, speaking at the National Small Business Week on May 1, has admitted that the United States banking system is fragile. In a recent statement, the Head of State revealed that the government will institute measures to ensure its financial system remains “sound and safe.”
Despite Biden’s comments, Bitcoin and most cryptocurrencies remain lower. Bitcoin is down 4% in the last 24 hours and roughly 10% from April 2023 highs, trading at $28,100.
Banks Collapsing In The United States, President Biden’s Assurance
The president’s comments follow the collapse of the First Republic Bank, the third major bank to collapse in less than two months.
The bank’s failure saw the stock’s price crash in late April 2023 as Bitcoin prices powered higher, charting as high as $30,000 on April 26. At this time, the cryptocurrency recovered after worrying losses from mid-April 2023.
As of April 26, First Republic Bank’s stock fell by as much as 50% as its trading was halted several times at the New York Stock Exchange.
The San Francisco-based bank revealed that it was hemorrhaging deposits, losing over $72 billion as clients moved their funds elsewhere in Q1 2023.
The crisis and the bank run at First Republic Bank were further amplified as two banks, the Silicon Valley Bank (SVB) and Signature Bank, came under fire around the same time cracks began emerging in the United States banking system.
SVB saw a deluge in withdrawal requests in a bank run where services were temporarily halted on the second week of March. Around this time, First Republic Bank also said it received a $30 billion capital injection from 11 lenders.
First Republic Bank’s assets were taken over by the Federal Deposit Insurance Corporation (FDIC) and later sold to JP Morgan Chase in a $10.6 billion deal.
It is out of this backdrop, and with more banks in the United States appearing to be facing a liquidity crisis, that Biden assures depositors that the government will intervene to calm the waters and steady the sector. Specifically, Biden said the government would protect depositors, including small businesses that need to process payroll for workers. The Head of State added:
Let me be very clear, all depositors are being protected. Shareholders are losing their investments. And critically, taxpayers are not the ones that are on the hook. (Government) actions are going to make sure that the banking system is safe and sound, and that includes protecting small businesses across the country who need to make payroll for workers.
Bitcoin Is Unresponsive, Pulls Back From April Highs
The Bitcoin price action is increasingly in synchrony with the general macroeconomic environment, especially in reacting to the state of the United State’s banking system.
For example, when SVB collapsed in mid-March, Bitcoin prices rallied, adding 58% from March 2023 lows before peaking at $31,000.
Currently, prices are lower, retracing from April peaks, and unresponsive to the United States’ promise of intervention to make the banking sector more robust. However, any threat to the legacy financial system is bound to support an increase in the cryptocurrency over the long term.
