Bitcoin rises after First Republic Bank disaster

The US banking crisis has hurt financial institutions this year. On March 8, Silvergate Bank declared its closure due to a deposit surge.

Bitcoin rises after First Republic Bank disaster
Bitcoin rises after First Republic Bank disaster

In the last twenty-four hours, the price of Bitcoin (BTC) increased by more than 3 percent due to fears of another imminent bank failure, as First Republic Bank (FRC) shares declined by more than 50 percent on April 25.

According to the head of research at Australian crypto education platform Collective Shift, the price of Bitcoin increased immediately after Fox News Business reporter Charles Gasperino reported that bankers working with First Republic Bank anticipate the institution will be placed under government receivership.

Receivership is a strategy that enables creditors to recover funds at risk of default and helps troubled businesses avoid bankruptcy.

Data from the crypto analytics firm Santiment suggested that the correlation between Bitcoin and the S&P 500 may be weakening as the narrative that Bitcoin is a secure refuge amid the banking crisis regains momentum.

Early in March, First Republic began experiencing difficulties, prompting 11 of the greatest banks in the United States, including J.P. Morgan and Bank of America Corp., to deposit $30 billion at the troubled bank.

Bloomberg reported on March 26 that U.S. authorities were considering establishing an emergency lending facility to help the bank address its “structural challenges” with its balance sheet.

According to anonymous sources at the time, despite First Republic’s liquidity concerns, U.S. officials declared the bank’s deposits were “stabilizing” and it was not at risk of experiencing “the kind of sudden, severe run” that prompted regulators to close Silicon Valley Bank.

Unfortunately, these assurances turned out to be false.

The First Republic reported on its first-quarter earnings call on April 23 that total deposits had decreased by more than $100 billion and that it would “pursue strategic options” to bolster its financial position as soon as feasible.

First Republic Bank’s Q1 2023 earnings. Source: First Republic Bank

While the bank has yet to elaborate on these strategic options, the earnings report revealed that the troubled company intends to reduce its balance sheet and expenses by slashing executive salaries, reducing office leases, and laying off 20% to 25% of its workforce in Q2.

This year, the banking crisis has taken a significant toll on financial institutions in the United States. After a rush on deposits, Silvergate Bank announced on March 8 that it would be closing its doors.

The Silicon Valley Investment Bank was closed by the California Department of Financial Protection two days later.

Janet Yellen, secretary of the United States Treasury, has reiterated that the American banking sector remains resilient and stable despite the turmoil. “Our banking system remains sound, with strong capital and liquidity positions,” Yellen told the Financial Stability Oversight Council on April 21.