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The Federal Deposit Insurance Corporation (FDIC), the body that guarantees bank deposits in the United States, reported an alarming situation. According to the FDIC report, the US banking system has $517 billion in unrealized losses. In other words, assets that are at a loss, but that banks have not yet sold.

However, the FDIC says that if banks need to sell these assets, the result could be catastrophic. There are 63 banks that are at risk of insolvency in the country, which raises concerns about the stability of the North American economy.

The ISM Manufacturing PMI index was 48.7, below forecasts of 49.6, pointing to a larger-than-expected contraction in the industry. Interestingly, the price of Bitcoin (BTC) surpassed $70,000 after this data was released.

Therefore, analysts point out that Bitcoin could appreciate in value if there is a new bank failure, just as happened last year with the collapse of Signature Bank and Silicon Valley Bank (SVB).

Banks on the verge of bankruptcy

According to the FDIC, the reason for this situation is higher interest rates and the Federal Reserve’s (FED) delay in cutting rates. The higher the interest rates, the greater the banks’ liabilities become, which begin to fall in value with lower rates.

As a result, both banks and businesses in the US are under extreme pressure. Furthermore, the Fed Board ended the Term Bank Financing Program (FTFP) on March 11. This program provided better conditions for banks to pay off their liabilities.

Unlike previous years, the current context is one of rising financing costs, lower asset yields and higher interest rates. If banks have to sell their assets, the market could face a huge wave of bankruptcies.

Now, there are nine consecutive quarters of unusually high unrealized losses since the Fed began raising interest rates in 2022. During this period, three banks declared bankruptcy and that was enough to almost generate a financial crisis in the US, which only it did not occur because of intervention by the Fed and the FDIC.

Is there an increase in Bitcoin?

If further bank failures occur, the price of Bitcoin and other cryptocurrencies will likely see strong upward momentum due to possible bank runs. After all, BTC recorded a strong 150% gain in 2023, the same year as SVB and Signature went bankrupt.

Furthermore, the Fed and the Treasury Department have measures planned to contain a possible bankruptcy in 2024, a US presidential election year. These measures can range from cutting interest rates to the return of asset purchase programs.

Fed contracts currently signal a one-time rate cut this year, but favorable data in the coming months could bring a monetary policy shift as early as September.

The US Dollar Index (DXY) recently fell below 105 amid falling inflation and the job market. By the time this article was written, the DXY had fallen to 104.1. Meanwhile, the US 10-year Treasury yield also fell to 4.37% in anticipation of a possible interest rate cut.

With lower interest rates, risky assets tend to benefit, which could lead BTC to appreciate again.

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