Federal Deposit Insurance Corporation (FDIC) reported $517 billion in unrealized losses in the US banking system. FDIC says 63 banks are at risk of insolvency sparking concerns about the stability of the US economy and financial sector.
The ISM Manufacturing PMI, which came in at 48.7 below forecasts of 49.6, pointed to a bigger-than-anticipated contraction in manufacturing. Bitcoin price surpassed $70,000 as weaker manufacturing data increases the likelihood of interest rate cuts by the U.S. Federal Reserve.
FDIC Reports 63 Banks on Brink of Insolvency
The higher interest rates and delays in rate cuts have caused banks and businesses in the U.S. to remain under extreme pressure. Also, the Federal Reserve Board ended the Bank Term Funding Program (FTFP) on March 11, causing banks, especially regional banks, to face heightened risk.
FDIC said the US banking system is at high risk of insolvency as 63 banks have $517 billion in unrealized losses in Q1 2024. It happened amid rising funding costs, lower asset yields, and the impact of higher mortgage rates. The rising concerns can shake the stability of the financial sector and the broader economy.
“Unrealized losses on available-for-sale and held-to-maturity securities soared by $39 billion to $517 billion in the first quarter. The surge was driven by higher unrealized losses on residential mortgage-backed securities, a result of rising mortgage rates in the first quarter,” the FDIC reported. This marks the ninth consecutive quarter of unusually high unrealized losses since the U.S. Federal Reserve started raising interest rates in 2022.
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Will Bitcoin Price Rise Similar to Last Time?
Bitcoin price and the crypto market are likely to witness strong upside momentum due to possible banks runs. However, the Fed and Treasury Dept have measures in plan as this is an election year. The recent CPI and PCE data showed that inflation is gradually cooling and the ISM Manufacturing PMI has slowed, pushing the Fed to announce rate cuts soon.
Currently, Fed swaps signal a single rate cut this year, but favorable data in coming months can bring a full pivot of the Fed monetary policy as early as September.
The US dollar index (DXY) has dropped recently to under 105 amid cooling inflation and labor market, with a low of 104.1 at the time of writing. Meanwhile, the US 10-year Treasury yield also fell to 4.37%, a two-week low as further evidence indicates that the US economy is losing its resilience and strengthened the case for multiple rate cuts this year.
As Bitcoin moves opposite to DXY and Treasury yields, the pressure has eased and CME FedFatch Tool indicates a 52.6% odds of 25 bps rate cuts in September.
BTC price fell 0.5% due to profit-taking, with the price currently trading at $68,650. The 24-hour low and high are $68,577 and $70,230, respectively. Furthermore, the trading volume has increased by nearly 20% in the last 24 hours, indicating a rise in interest among traders.
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