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FameEX Hot Topics | Bitcoin Surges Following Price Crash of First Republic Bank

2023-04-26 16:34:00

Bitcoin has spiked more than 3% in the last 24 hours amidst fears of another possible bank failure following a significant drop in the shares of First Republic Bank (FRC) by over 50% on April 25. According to the head of research at Australian crypto education platform Collective Shift, Bitcoin rallied immediately following the breaking news by Fox News Business reporter Charles Gasperino that bankers working with First Republic Bank expect the institution to go into government receivership.

Receivership is a tactic that allows creditors to recover funds that are experiencing a potential default, and it helps troubled firms avoid bankruptcy. Crypto analytics firm Santiment's data showed that the correlation between Bitcoin and the S&P 500 may be dwindling as the narrative that Bitcoin is a safe haven amid the banking crisis has once again gained steam. First Republic Bank began experiencing issues in early March, leading 11 of the largest banking institutions 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 looking at creating an emergency lending facility to help the bank in shoring up the "structural challenges" with its balance sheet.

Despite First Republic staring down the barrel of 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 led regulators to close down Silicon Valley Bank. In its first quarter earnings call on April 23, First Republic reported that total deposits had plummeted by more than $100 billion and it would be "pursuing strategic options" to strengthen its financial standing as quickly as possible.

While the bank has not clarified what these strategic options are, the earnings report highlighted that the embattled firm plans to downsize its balance sheet and cut expenses by slashing executive salaries, slimming down on office leases, and laying off an expected 20% to 25% of its employees in Q2. The banking crisis has taken a heavy toll on financial institutions in the U.S. over the course of this year. On March 8, Silvergate Bank announced that it would be closing its doors after experiencing a run on deposits. Two days later, Silicon Valley Investment Bank was shut down by the California Department of Financial Protection.

Despite the turmoil, U.S. Treasury Secretary Janet Yellen has reiterated that the American banking sector remains robust and stable. "Our banking system remains sound, with strong capital and liquidity positions," Yellen told the Financial Stability Oversight Council meeting on April 21. With the recent development in First Republic Bank and the continued volatility in the banking sector, Bitcoin and other cryptocurrencies may emerge as alternative investment options for investors seeking a safe haven in turbulent times.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.

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