Banks in Turmoil, Bitcoin Rising

Cryptoassets are surging this Monday afternoon due to continued turmoil in the banking industry and a violent repricing of rates. Despite the government guaranteeing customer deposits of the fallen SVB and Signature Bank, investors are keyed in on the unrealized losses remaining on the balance sheets of regional banks. As we discussed on Friday, we anticipated an orderly wind-down of SVB and that rates rolling over would benefit cryptoassets. BTC is leading the way, up 22% since Friday evening, while ETH trails right behind, up 20% over the same period. We are witnessing extraordinary rate volatility, with the U.S. 2Y down 44 bps and the U.S. 10Y down 20 bps. Meanwhile, the DXY is down 1% as the Fed Funds futures market is no longer pricing in a 50 bps increase in rates at the next FOMC meeting. In fact, according to the futures market, traders think there is currently a 23% chance that rates will remain where they are. This pricing makes sense considering that the financial system’s vulnerability now centers around low-yield long-duration treasuries that will be more underwater should the Fed decide to hike.