On December 9th, we announced that we are buying Bitcoin and laid out the reasons why in a free article that was quite clearly named: “Bitcoin is Going to Rally Again: Here’s What You Need to Know.” Since stating that in that article that Bitcoin was at a meaningful low, Bitcoin is up ~62%. Here is what I said:
“Though we are in the 4th bear cycle in Bitcoin's history, the prior 3 cycles suggest where we are is a rare buying opportunity. There is ample evidence to support the $15,500 level is either a major low or very close to a major low. Both the technical and on-chain analysis support this.”
We then followed up that article on January 9th, stating that Bitcoin is likely in the early stages of a cyclical uptrend, and that we are continuing to buy at current prices. Since then, the price is up ~40%.
Not only is the on-chain analysis lining up with our technical analysis, but the fundamental story behind Bitcoin’s intended purpose is starting to manifest. Most forget that Bitcoin’s white paper was first introduced on the heels of a banking crisis that nearly brought down the global financial system. The intended purpose of Bitcoin was to be a hedge against failing banks, as stated by its creator in 2009.
“The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”
The recent decoupling of Bitcoin from equities, we believe, is the start of a new uptrend that appears to be inversely correlated to the financial sector.
The financial media would have us believe that the current banking crisis is mostly US centric, and localized to regional banks. However, as we look at various charts from these banks, a different story emerges. This is not just a US problem, and it is not limited to regional banks. As more and more investors realize their deposits, once again, may not be safe, we should see an increase in Bitcoin’s demand, which is supported by the on-chain and technical analysis provided below.
Bitcoin and Banks
On Friday, March 10th, Silicon Valley Bank (SIVB) failed. With over $200 Billion in deposits, SIVB was one of the largest banks in the US, and therefore one of the largest bank failures in US history. This was quickly followed by the failure of Signature Bank in New York, with deposits of over $110 Billion. What followed was a mini panic out of regional bank stocks, as we soon saw depositors fleeing the more vulnerable regional banks and into the Too Big to Fail banks.
Interestingly, on March 10th, Bitcoin bottomed and began one of the sharpest jumps we’ve seen since 2021.
This may seem like a random occurrence, yet this move lines up with Bitcoin’s original white paper, first published on the heels of the Great Financial Crisis (GFC) by the mysterious Satoshi Nakamoto. The original intent of Bitcoin was to create a true peer-to-peer electronic payment network that did not rely on centralized institutions to facilitate transactions. In short, it was the first real attempt to disrupt the banking system, and remove the inherent risks in a centralized banking system.
Coincidentally, this white paper was released in February, 2009, which was at the height of despair from the global banking system melting down. Most people assumed their money was safe in a bank and that it would be there when they need it. Most people had no idea about fractional banking, let alone credit default swaps and collaterized debt obligations. What they did realize on a primal level in 2008 was that their money was at the mercy of a centralized system that was much more complex than they thought and not as safe as they previously believed.
What we are seeing today is a repeat of the same realization, only with different details. The popular narrative regarding the current banking crisis is that deposits are fleeing regional banks at a record pace and moving into the “Too Big to Fail” banks, like JP Morgan, Citigroup, Bank of America. Therefore, any additional weakness in banks should be localized to regional banks while the big banks continue to thrive, which should offset the current weakness.
This sounds plausible, and fits within the relative calm we’ve had since the FED has fenced off the problem banks. However, if we look at the big banks that should be receiving this tailwind of deposits, another picture emerges.
Bank of America (BAC) is one of the largest and most important banks in the US. After the epic consolidation from the GFC in 2008, it was deemed, along with a handful of other banks to be Too Big to Fail, and it remains so today. Just a simple glance at the price chart and we can see that BAC is comfortably below its October low with no buyers stepping in at a critical support level.
BAC is threatening to break a trendline that has kept the stock trending up since 2012. What is also concerning is that BAC has completed a large degree 5 wave uptrend off the 2009 low. Furthermore, the corrective pattern that began in late 2021 is incomplete and suggesting a test of the COVID lows is needed before some kind of meaningful low can be found. The failure to find buyers at such important support is alarming.
Another “Too Big to Fail” Bank is Citigroup (C). This chart is significantly weak, and has basically trended sideways since the 2009 low.
Like BAC, it has completed 5 waves up off the 2009 low; however, it topped in 2019, failing to make a new high during the COVID bull market. Also, like BAC, it appears to be pointing towards the COVID low to complete a large degree correction.
Another Bank deemed “Too Big to Fail” is Morgan Stanley (MS). It is also in a precarious position.
Though it is relatively stronger than BAC and C, it has also completed a large 5 wave uptrend off the 2009 low. The following correction, like most bank stocks, has not completed its corrective pattern and looks to be targeting a price below the October low of 2022.
These large banks have quite unhealthy and concerning charts. They suggest that what is going on in the banking sector may not be a tailwind for them, but in fact, a headwind that will offset any increase in deposits.
What’s more concerning is that the banking issues do not seem to be localized to just the banks. The below chart is Metlife (MET), one of the largest insurance providers in the US.
This is one of the weakest charts in the mega cap financial spaces, as the stock cannot catch a bid at major support. The corrective pattern looks to be a 5 wave move down that is incomplete. If accurate, it suggests that MET has put in a major top.
Capital One (COF) is another big financial stock that looks like it is in trouble. As a credit card and banking company, its chart looks to be heading much lower, as it attempts to find buyers at a key support level.
Furthermore, the issue is obviously not localized to the US, proven by the collapse of Credit Suisse. However, if we look at various charts from global banks, a similar pattern emerges.
The Royal Bank of Canada (YT) looks a lot like some of the bigger banks in the US. After completing a large 5 wave uptrend into the late 2021 high, we have an incomplete corrective pattern that should take us well below the October 2022 low.
A few additional bullets on the global banks:
- Deutsche Bank announced that they will redeem $1.5 Billion of notes due in 2028. As a result, the cost of their credit default swaps increased sharply, much like we saw with Credit Suisse prior to their collapse. European banks have been down across the board on this news, as Deutsche Bank saw a 14% drop that day, and is down ~25% from its February high.
- The French CAC has been one of the stronger indexes in Europe; however, under the hood, the banking sector is the weakest sector, much like in the US. BNP Paribas, Frances largest bank, for example, is down ~18% from its March high.
- Now, UBS is being probed and possibly sanctioned due to their support of Russian Oligarchs.
- Two of Japan’s largest banks, Mitsubishi UFC Sumitomo and Mitsui Financial, are down between 14% - 17% from March 9th.
- The largest bank in Australia, the Commonwealth Bank of Australia, is down ~13% since March 14th, while England’s largest bank, HSBC, is down ~14% since late February.
- Itaú Unibanco, Brasil’s top bank, is down ~15% since late February and over 25% since last November.
The point is that whatever is unfolding in the banking sector is not localized to US regional banks, and is certainly a global concern. The more uncertainty in the centralized banking system, the more that Bitcoin will fulfill its true purpose.
In our last free article, we discussed that inflation pressures are still quite high, especially within the service sector. Evidence is building that crude and gasoline are looking to breakout to higher levels, which was confirmed with OPEC announcing surprise production cuts this week.
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