Here We Go Again
Yesterday, we experienced yet another collapse within the banking sector. A collapse many were not expecting. This is perhaps due to a statement made earlier by the CEO of JP Morgan, Jamie Dimon. According to Dimon, the domino effect of this collapse has reached a point of exhaustion. He did however warn of additional “cracks” in the system later coming to light.
There may be another smaller one, but this pretty much resolves them all.
I must admit that I am rather skeptical and even, unconvinced. Obviously, industry leaders will be doing everything within their power to instill confidence and avoid contagion. When I initially warned of a banking crisis back in 2022, I envisioned a significant collapse, one that would ultimately dismantle trust. Even though we have seen some disastrous events, I believe there is still more to come.
I mentioned this some weeks ago, and am expecting this to unwind a little longer. Yesterday’s events were very much in line with my expectations. However, I very much doubt whether that was indeed the last of it. It’s important to note that periods of calm are not necessarily indicative of finality. The market could once again maintain a significant period of stability, only to later collapse, once more.
The interest rate decision, expected later today, will obviously play a key role in establishing market sentiment, at least in the short term. The market is once again expecting another 25 bps, or possibly, even a pause. The resilience and strength of the Crypto market continue to impress, especially in terms of decoupling. Bitcoin appears to be adamant about creating some distance between itself and the stock market.
This is what we have been expecting, and the longer this behavior continues, the more we can expect to see this decoupling extend beyond an isolated event. Yesterday’s biggest losers were, of course, PacWest, Western Alliance, and Metropolitan Bank. Stocks plunged in excess of 30% on the day, and have since managed to muscle a rather modest bounce. It’s safe to say that trust and confidence are beginning to erode.
No Bigger Marketing Campaign
This continues to be a very effective marketing campaign for Bitcoin. As many of us have said numerous times, failure within the realm of TradFi promotes the advantages and selling points of Bitcoin. Even if this collapse manages to avoid further casualties, it has served to expose the fragility of a sector many had previously thought was rock solid. That alone is a “moment of truth” that is still to produce ongoing negative repercussions for the industry.
In general, I believe markets are trying to find their feet, as a new reality begins to hit home. Markets tend to “survive” negative periods, in the expectation of a shift in sentiment. However, I believe markets are entering a phase of rediscovery, as global chaos begins to be interpreted as ongoing, rather than transitory. Markets will need to adjust responses and reactions, as market participants begin to factor in ongoing chaos and disruption.
This will ultimately cause an adjustment in behavior, ultimately resulting in some rather unpredictable market movements. Of course, my own thoughts. I do however believe market dynamics will change somewhat over the coming years. Anyway, let’s see what Jerome has to say later on today. All the best!