The market is experiencing a strong wave of positivity. Cryptocurrency is rising due to the actual resolution of the USDC issue and possible easing by the Federal Reserve System (FRS).
Positives:
- The US government and the FRS have recognized the systemic risk of a collapse in the regional banking system, and not only regional. They have taken action to address the issue.
- Currently, there is a period of calm before the announcement of rates, so the FRS cannot comment on what will happen at the March meeting starting Monday. However, the rate expectations of major investment banks have significantly changed. Now, they expect only one rate hike this year.
- Easing by the FRS is a strong positive for crypto.
- USDC is rapidly returning to parity, and it seems that they will return most of the reserves from SVB.
- I am convinced that Biden knows somewhere that inflation will show a decrease this week, which the market will perceive as exclusively positive.
Risks:
- Despite all these rescues and FRS easing, the wheel in the banking sector has spun (there will be a separate post about this). Bankruptcies are still possible, especially if everyone is being rescued, why not go bankrupt during such a celebration?
- Subsequent bankruptcies could again trigger a stock market crash.
- High inflation has not disappeared, and the FRS’s reversal will simply delay this problem. I do not think that the FRS will suddenly ease its policy, but it will not raise rates more than 0.25%, but it will not lower them.
Basic scenario
The US stock market will open an hour earlier today. It is important to pay close attention to the movements there.
First Republic Bank (another California bank) seems to be bankrupt as its shares have already lost 60%.
Basically, we expect a dip today, and then we can start buying again.
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