‘Banks Are Melting’ — Elon Musk Sends Warning To Joe Biden And The Fed Amid Wild Bitcoin, Ethereum And Crypto Price Swings
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Bitcoin and cryptocurrencies have rocketed higher over the last week as the Silicon Valley Bank-led banking crisis sparks worrying hyperinflation fears.
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The bitcoin price has added almost 50% since early March, helping the ethereum price and other cryptocurrencies rally, due to rising expectations the Federal Reserve will pivot 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 U.S. president Joe Biden after the Federal Reserve raised interest rates again.
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"The banks are melting," Musk replied to a Twitter post by Biden that referenced his administration's climate change achievements over his first year in office.
Three U.S. banks -- Silicon Valley Bank, Signature Bank and Silvergate Bank -- have all collapsed this month, partly due to interest rate rises wiping out the value of the bonds they held. Both Silvergate and Signature were friendly toward bitcoin and crypto companies, fueling speculation they demise was somehow triggered by their involvement in the crypto space.
Meanwhile, shares in First Republic Bank have crashed 90% over the last month, falling again this week on reports it may need to raise more funds being thrown a $30 billion lifeline by larger rivals. In Europe, long-time basketcase Credit Suisse has been hastily sold to rival UBS in a deal that values it at a fraction of what it was worth just weeks ago.
This week, speaking after the Fed raised interest rates for a ninth-consecutive time, chair Jerome Powell described Silicon Valley bank as an "outlier" and that the financial system in general remained strong.
The bitcoin and crypto market has crashed along with stock markets since the Fed said in late 2021 it would begin hiking interest rates and tightening monetary policy slow inflation. The bitcoin price crashed to lows of under $20,000 from a peak of almost $70,000, while the ethereum price and other major cryptocurrencies saw similar declines.
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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 drops in bank stocks," Ilya Volkov, the chief executive 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-year and 10-year U.S. treasuries, the main indicators for financial professionals, significantly decreased lately. So a future 25 basis point increase by the Fed is already in the price."
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