How The Banking Crisis is Playing OutMar 20, 2023
Every Friday we host a live 1:1 discussion via discord at 12pm EST.
This gives you the opportunity to ask us any questions you have on the markets, the economy, crypto, and more!
If you want to listen to everything we broke down, just click the video above.
Here are the 4 key things we went over:
An update on the continuing fallout from the Silicon Valley Bank & Credit Suisse collapse
- The mechanics that are driving regional bank weakness
How regulators can limit contagion from spreading this week
Why is crypto suddenly surging
And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.
To get all the juicy details, just listen to the entire recording. And now, onto the summary👇
Last week was almost quite literally a rollercoaster for the market. Every day there was a reversal as various banks appeared to be in turmoil, then rescued.
The two primary drivers of this situation are First Republic Bank and Credit Suisse.
Despite First Republic getting institutional support and Credit Suisse getting a confirmed buyout from UBS, there are still structural concerns driving selloff across the board.
So, what gives? What's driving this crisis and where will it go from here?
The Structural Issues Causing the Crisis:
And to be clear, the drivers here are very complex and we are far too early in this process to know precisely how it will play out. All good financial analysis is done after the fact.
And in short, the regional banks that are in trouble got there thanks to rising interest rates.
Any bank that bought treasury bonds prior to rates going up is technically losing money on that trade right now.
We go WAY more in-depth during the actual podcast, but that's the oversimplified core of the issue right now.
And the most important thing to keep in mind here is this: we're really in the thick of it right now when it comes to how far this will go. Right now, the systemic side of this seems properly contained with ongoing investment and guarantees. Bank stocks keep rising and falling due to the extreme amount of fear in the system.
Right now, the Moby analyst team has shifted to more defensive names as we keep building our portfolios.
While fear is the primary driver in this particular market, there are still solid names making good money or blue-chip stocks that are getting temporarily undervalued.
With the timescale we operate on, this is more of a blip than anything else.
The Crypto Surge:
Meanwhile, we are getting hit with a paradoxical SURGE in the crypto markets.
From the start of the SVB collapse to today, Bitcoin has surged 40%. This puts Bitcoin up 70% on the year, which is also driving the rest of crypto skyward as well.
Ethereum has topped 50% YTD, and the altcoin space is rioting with volatility right now. This definitely is weird from our perspective, as we have mostly been using crypto as a barometer for how much risk the market has an appetite for. In the last 3 years, BTC movements have largely mirrored the NASDAQ -- meaning that it was trading the same way riskier stocks were.
But now, crypto writ-large has temporarily decoupled from the broader market. What gives?
There are a few things at play here.
Right now, the primary fear is in banking itself.
The entire thesis for crypto is that currencies like BTC can take over after the bloated and over-regulated monetary system collapses. So, in some ways, it stands to reason that a lot of money would flee banks and head to crypto right now.
Institutional money definitely isn't driving this though, otherwise, we would see much larger moves. Right now this appears to be more manufactured than anything else.
Larger investors with long-held crypto investments are pulling some money out of banks and putting it into the crypto ecosystem, and they are being followed by retail investors en masse.
It's going to take some time to know if crypto is fully decoupling from the market or if this is a temporary blip of volatility during a pretty wild market moment.
We'll keep you posted about all these moves and let you know when we decide if this decoupling is real or not.
Wrapping this Up:
Like every other moment in this downturn, this is another one being driven more by volatility than fundamentals.
We're going to get a lot more apocalyptic and euphoric headlines in the next few weeks, but it is genuinely hard to see where this will move in the long-term.
There are plenty of guards in place to keep this from accelerating a downturn, but contagion is genuinely hard to spot.
The best move right now is caution as this shakes out. We'll keep our analysis more defensive and keep you posted as this develops.