Bitcoin declines alongside equities as analyst cautions about potential banking crisis ‘final phase’

Bitcoin (BTC) dropped below $29,000 around the opening of Wall Street on May 4, as U.S. equities exhibited unease amid the reemerging banking crisis.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

“Too much all at once” for U.S. banks

Data from Cointelegraph Markets Pro and TradingView indicated that BTC/USD was losing value as the S&P 500 declined by 0.7%.

The downturn in risk assets coincided with further turmoil for U.S. regional bank stocks, with PacWest Bancorp once again at the forefront, plummeting over 50% on the day.

The troubled lender had already experienced significant losses and, at the time of writing, was down 86.5% year-to-date. However, the bank characterized its situation as “solid” in a statement.

As reported by Cointelegraph, assurances from U.S. authorities regarding the stability of the banking system seemed inconsistent with the reality perceived by many commentators, with confusion escalating as the crisis persisted.

Within the last 24 hours:
1. PacWest Bank, $PACW, considers potential sale
2. Western Alliance Bank, $WAL, considers potential sale
3. First Horizon Bank, $FHN, cancels merger with TD Bank due to "regulatory concerns"
4. Fed states "banking system is sound"
5. No comment from…

— The Kobeissi Letter (@KobeissiLetter) May 4, 2023

“For the first time in weeks, equity markets are reacting to the banking crisis,” financial commentary source The Kobeissi Letter noted in part of its Twitter coverage.

Kobeissi contended that the recent Federal Reserve interest rate hike, confirmed at 0.25% on May 3, had exacerbated the situation.

“Perhaps this is the equity market’s concern that the crisis may not be contained,” it added.

“The Fed rate hike is only making matters worse.”

In addition to PacWest, First Horizon and Western Alliance were also significant losers on the day, falling 53% and 38%, respectively.

“Trust in a financial institution is built over decades and can be destroyed in days,” Bill Ackman, CEO of hedge fund management firm Pershing Square, remarked in his own response.

“As each domino falls, the next weakest bank begins to falter. Until investors are incentivized to bet on a faltering bank, there will be no bids, and the best sale price is the last one. We are running out of time to resolve this issue.”

In a dedicated blog post regarding the crisis, Marty Bent, founder of crypto media firm TFTC, referred to it as a point of no return.

“Everywhere one looks, the situation appears dire for the U.S. financial system. This feels like the endgame,” he cautioned on May 3.

“I find it hard to believe there is anything that can be done to restore faith in the system. No amount of backstopping, money printing, buybacks, consolidation, or global conflicts will be able to put this genie back in the bottle. The Fed and the Treasury will strive to convince the public otherwise, but this is simply too much all at once.”

SPDR S&P Regional Banking ETF (KRE) 1-day candle chart. Source: TradingView

Weekly chart underscores $28,800 BTC price significance

Focusing on Bitcoin, BTC/USD found itself in a low liquidity zone at the time of writing, with large-volume traders remaining on the sidelines.

Related: Bitcoin miners have earned $50B from BTC block rewards, fees since 2010

Data from the Binance order book shared on Twitter by monitoring resource Material Indicators revealed that bid liquidity was gradually increasing above $28,000.

If you are curious why yellow is buying #BTC here and brown mega whales haven't, it’s not likely retail vs smart money. It’s because liquidity between here and $29.1k is so thin that the slippage on a whale-sized order would be significant, so they are literally forced to make… pic.twitter.com/foZLhWeSuR

— Material Indicators (@MI_Algos) May 4, 2023

As various prominent traders called for higher levels to return in order to challenge the $30,000 resistance, longer-term perspectives remained optimistic.

Notable trader and analyst Rekt Capital emphasized current spot price levels as part of a crucial reclaim operation.

“Last week, BTC Weekly Closed above ~$28800. And this week, $BTC has managed to hold it as support, largely due to the aggressive buying in recent days,” he explained regarding weekly timeframes.

“Reclaim of the $28800 level is technically in progress.”

BTC/USD annotated chart. Source: Rekt Capital/Twitter

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.