Bitcoin (BTC) rose toward $29,000 in European morning hours on Wednesday, with some investors pointing to expectations the Federal Reserve will inject money into the economy in the coming weeks after signs of yet another U.S. bank collapse.
Shares of First Republic Bank (FRC) tumbled 50% on Tuesday after the San Francisco-based lender revealed a dramatic slump in deposits. Investors withdrew over $100 billion from the bank this quarter, prompting concerns it will become the third bank to fail, joining Silicon Valley Bank and Signature Bank.
The slide stressed U.S. markets, with the Dow Jones Industrial Average losing 1% and tech-heavy Nasdaq 100 dropping almost 2%. In contrast, bitcoin has added 5.7% in the past 24 hours, following safe-haven assets such as gold to reverse nearly all losses from last week’s sell-off.
Overall crypto market capitalization grew 4.6%, with the likes of cardano (ADA) and solana (SOL) tokens jumping more than 6% to lead gains among major tokens.
Some observers reasoned the rally came from expectations of a liquidity injection by the Fed in a bid to protect its capital markets.
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“With First Republic Bank looking like it could go under, I suspect the market is anticipating yet more liquidity injections to prop up what certainly seems to be an American banking sector that is still very much in the throes of crisis,” Jake Bu türlü, a director of retail crypto brokerage Caleb & Brown, wrote in an email to CoinDesk.
“Bitcoin, as a result, is front-running these expectations. Cracks in the financial system are growing, even if relatively subtly at the moment, and it’s going to be incredibly difficult for the Fed to adhere to its tightening regime going forward,” he said. “Bitcoin’s rally of late has more to do with liquidity injections and rising expectations that the Fed’s tightening will probably have to end fairly soon, or else even greater turbulence in the banking sector could ensue.”