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Bitcoin (BTC) surged to $29,000 during European morning hours on Wednesday, as some investors speculated that the Federal Reserve would inject money into the economy in the coming weeks due to signs of yet another U.S. bank collapse. This is the highest level Bitcoin has reached since April 20, according to TradingView data.
Shares of First Republic Bank (FRC) plummeted 50% on Tuesday after the bank disclosed a significant drop in deposits. Investors withdrew over $100 billion from the bank this quarter, leading to concerns that it will become the third bank to fail, joining Silicon Valley Bank and Signature Bank.
This news negatively impacted U.S. markets, with the Dow Jones Industrial Average losing 1% and the tech-heavy Nasdaq 100 dropping almost 2%. However, Bitcoin and other safe-haven assets like gold rallied, reversing nearly all losses from last week's sell-off. The overall crypto market capitalization grew 4.9%, with tokens like cardano (ADA) and solana (SOL) jumping more than 7% to lead gains among major tokens.
Some analysts attributed the rally in Bitcoin to expectations of a liquidity injection by the Fed to protect the capital markets. Jake Boyle, a director of retail crypto brokerage Caleb & Brown, said, "Bitcoin, as a result, is front-running these expectations. Cracks in the financial system are growing, even if relatively subtly at the moment, and it’s going to be incredibly difficult for the Fed to adhere to its tightening regime going forward." He added, "Bitcoin’s rally of late has more to do with liquidity injections and rising expectations that the Fed’s tightening will probably have to end fairly soon, or else even greater turbulence in the banking sector could ensue.