Gold and Bitcoin benefit from banking stress

Bitcoin has had a hard time in recent weeks, but the stress in US banks means that digital gold has started a resurgence. At the time of writing, Bitcoin is flirting with the USD 25,000 price and gold also seems to be benefiting from the weakness in the banks. The balances at Silicon Valley Bank and Signature Bank are now guaranteed by the US government, but the stress is not over yet.

Stress indicator for banks skyrockets

The gap between the US three-month forward rate agreement (FRA) and the overnight index swap rate (OIS), also known as the FRA-OIS spread, measures how much it costs for banks to borrow US dollars from each other. As a result of the problems, this stress indicator jumped sharply to its highest point since March 2020.

The interbank lending market is a crucial part of the banking system that helps banks manage their liquidity needs. If this market does not function and it is very expensive for banks to borrow money from each other in the short term, this can pose a threat to the financial system.

We are now at a point where it threatens to become dangerous again, but we are still far from the levels of the financial crisis of 2008. In that respect, Bitcoin seems to have to wait for the first financial crisis in its life.

Is the Federal Reserve Pausing?

The high FRA-OIS spread is a sign that the system is under considerable stress, strengthening the argument for a pause from the Federal Reserve. Another Federal Reserve interest rate meeting is scheduled for March 22. While an interest rate increase of 0.50 percent was expected last week, there is now a significant chance of a pause.

A pause means the Federal Reserve will not raise interest rates. If that is indeed the case, there is a chance that Bitcoin will continue its current rally. That is why the stress in the banks is causing an increase in assets such as Bitcoin and gold.

Bitcoin and gold have to rely on their scarcity and if the US government has to print dollars again to keep the system afloat, it will make Bitcoin and gold more attractive to investors.

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