Crypto markets are currently bracing themselves for the impact of jitters of a crisis in the banking sector. The setback to financial institutions that had started in 2023, has spilled into 2024 as well. With banks reporting losses, laying off staff, and going through cash crunches, crypto investors are now worrying about a possible price drop in the future.

US Fed signals lending issues

According to a report by Yahoo Finance, the Federal Reserve on Wednesday no longer included wording characterizing the US banking sector as “sound and resilient”. The term had been used since March 2023 to convince the public that regional lending issues were under control.

That coupled with fresh unrest at various banks has fueled worries that a possible fallout might come true.

Banking jitters weigh on sentiments

The banking sector across the globe has seen indicators of upcoming worries, concerning market participants about a potential fallout.

According to the Yahoo Finance report, New York Community Bancorp (NYCB) announced a surprising quarterly deficit, cut its dividend, and began hoarding millions for potential loan losses. This comes just a day Germany’s Deutsche Bank declaring that it would be laying off 3,500 employees to save expenses. Although there has been progress in decreasing capital outflow, Germany’s largest lender still needs to find savings of €1.6 billion ($1.7 billion), some of which would come from “simplified workflows and automation.”

Previously sector behemoth Citi had also declared that they will be laying off about 20,000 employees in a similar vein. Both banks announced layoffs after their underwhelming quarterly profit reports. The massive investment banking firm BlackRock Inc. had already declared that it would fire 3% of its staff.

The layoff and losses have followed the larger suit of ongoing crisis in the industry. Shacking the foundations of financial markets last year was the Silicon Valley Bank fallout. In March 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB). The reasons for the shutdown included a significant decline in the value of investments and withdrawal of funds.

Even the crypto markets saw their ground getting shaken by the fall of Silvergate bank. The crypto-friendly bank collapsed after reporting a loss of $8.1 billion in the January of 2023. On March 8, 2023, it was announced that Silvergate Bank would wind down its operations and liquidate.

Will crypto markets get affected?

Crypto markets have always been sensitive to boarder investor sentiments. According to S&P Global, both bull and bear markets for cryptocurrencies have occurred during times of extremely loose monetary policy and marked tightening. Although the sharp rise in interest rates may have a detrimental effect on cryptocurrency markets, idiosyncratic variables also appear to be important. Cryptocurrency markets seem to do better in times of low market volatility and worse in times of high volatility.

If investor sentiments are dented because of a larger banking crisis, it can negatively effect crypto markets. However, an opposite of a situation could also see crypto markets going for a bull run due to banking fallout. In an shocking event, incase market sentiments shift more towards a decentralized currency option, crypto markets could lure a significantly higher amount of investors.

Also Read: Wall Street Bitcoin and Ethereum Allocations Rise to Year Highs; What’s Next for BTC Price?

Bitcoin price: what to expect in future?

As of today, Bitcoin prices have been a little rangebound since the green signal for the Spot ETF approval was declared. winging between a range of $40,000 to $43,000, the OG crypto currency has been waiting for better cues to ascend in future.

The present trajectory in bitcoin prices has been compared by analysts to a significant drop that occurred in January 2021. Given the historical background, it appears that periodic declines are common and frequently come before market recovers. Bitcoin saw a sharp 30% decline in January 2021, but it soon bounced back and reached all-time highs.

Bitcoin is currently going through a consolidation phase that is being impacted by selling related to ETFs. Given that the next halving is anticipated on April 7, 2024, historical trends point to the possibility of a big correction prior to setting up a powerful rally.

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