“Banks are melting” – Elon Musk sends warning to Joe Biden and the US Federal Reserve amid wild price swings in Bitcoin, Ethereum and Krypto
BitcoinBTC and cryptocurrencies have shot higher in the past week as the Silicon Valley Bank-led banking crisis raises worrisome fears of hyperinflation.
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Bitcoin price has added nearly 50% since the beginning of March, helping the price of ethereum and other cryptocurrencies to rise, on growing expectations that the Federal Reserve will swing from its hawkish stance in the face of slowing inflation and bank collapses.
Now Tesla billionaire Elon Musk has waded into the debate, sending a warning to US President Joe Biden after the Federal Reserve raised interest rates again.
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“The banks are melting,” Musk responded on Twitter mail by Biden referring to his administration’s climate change efforts during his first year in office.
Three US banks – Silicon Valley Bank, Signature Bank and Silvergate Bank – have all collapsed this month, in part because of interest rate hikes that wiped out the value of the bonds they held. Both Silvergate and Signature were friendly to bitcoin and crypto companies, leading to speculation that their demise was somehow triggered by their involvement in the crypto space.
Meanwhile, shares in First Republic BankFRC have crashed 90% in the past month, falling again this week on reports it may need to raise more funds being thrown a $30bn lifeline by bigger rivals. In Europe, longtime basket case Credit Suisse has been quickly sold to rival UBS in a deal that values it at a fraction of what it was worth just a few weeks ago.
This week, after the Fed raised interest rates for the ninth time in a row, Chairman Jerome Powell described the Silicon Valley bank as an “outlier” and that the overall financial system remained strong.
Bitcoin and crypto markets have crashed along with stock markets since the Fed said in late 2021 it would begin raising interest rates and tightening monetary policy to curb inflation. The price of Bitcoin crashed to a low of under $20,000 from a peak of nearly $70,000, while the price of ethereum and other major cryptocurrencies saw similar falls.
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“After the collapse of Silvergate, Silicon Valley Bank and Signature Bank, the Fed reduced its aggressive rhetoric, which was a positive signal for financial markets despite the sharp declines in banking stocks,” Ilya Volkov, CEO of Swiss-based international fintech platform YouHodler , said in emailed comments, adding bitcoin and crypto prices have held up well recently.
“The positive impact is also clearly seen in the bond market. The yield spread between 2- and 10-year US Treasuries, the key indicators for financial staff, has fallen significantly recently. So a future 25 basis point increase from the Fed is already priced in.”
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