Will market madness continue as Fed looks to hike rates?

As the NCAA’s March Madness gripped the U.S. this week, market madness took hold in the crypto world. Bitcoin and ether surged 35% and 25% respectively even as turmoil persisted in the banking industry. Some regional banks witnessed double-digit declines in their share prices toward the end of this week and the chaos looks set to continue with regulators and key banking players debating how to stem contagion, which is all happening alongside a key macroeconomic event, the Fed’s decision on rates.

(And yes, let’s not talk about how my alma mater Northwestern failed to advance to the NCAA’s Sweet 16 bracket last night). 

Expect more turmoil

Turmoil is set to persist in the banking sector despite regulators confirming last week that depositors of both Silicon Valley Bank and Signature Bank will be made whole. Attention has now turned to other regional banks that may face similar challenges.

One of those banks is First Republic, whose shares fell more than 30% on Friday after an announcement that several big banks would come together to orchestrate a rescue deal for the regional player. The announcement did not succeed in shoring up confidence. Meanwhile, a coalition of midsize banks in the U.S. has approached regulators about extending FDIC insurance to all depositors for the next two years as another measure to increase confidence, according to a report from Bloomberg. 

The KBW Nasdaq bank index ended the week down about 11%. Investors are likely to experience more turbulence heading into the open on Monday unless regulators can restore confidence. 

Across the pond, Switzerland is preparing to use emergency measures to fast-track the takeover of Credit Suisse by UBS, so banks and regulators can seal the merger deal before markets open on Monday, according to a report from the Financial Times. All eyes will be on Credit Suisse and the knock-on effect the news has on markets. 

Fed watchers stand guard

Speaking of markets, as banking stocks tumbled, bitcoin and ether surged. Analysts and investors will be watching closely to see whether the crypto assets maintain this rally with the Federal Reserve expected to hike interest rates on Wednesday. 

On Tuesday, the Federal Reserve will kick off its two-day Federal Open Markets Committee meeting for March. The meeting will close out with a news conference and interest rate decision on Wednesday. The Fed is expected to hike rates by 25 basis points despite the turmoil in the banking industry, according to economists surveyed by Bloomberg. 

“We expect that the [Bank Term Funding Program] will be enough to stem further bank runs, and at least quell market volatility until next week’s FOMC, allowing them to hike 25 basis points,” said crypto trading firm QCP Capital in a market update this week. 

Drop it likes its hot

A day after the Federal Reserve’s interest rate decision, a highly anticipated airdrop will take place. 

Layer 2 scaling solution Arbitrum will airdrop its token on Thursday. About 12.75% of its total token supply will be airdropped to the community. The tokens will be given to those who have used the network over the last year. Offchain Labs, the developer of Arbitrum, worked with crypto data provider Nansen to design the criteria designating who should receive the airdrop, The Block reported. 

The airdrop was announced to give recipients time to nominate themselves as delegates and give the Arbitrum Foundation time to handle approvals. Offchain Labs hasn’t communicated with any centralized exchanges to list the Arbitrum token, The Block reported. 

Crypto VCs recently told The Block that at least half of their portfolio companies were holding back token launches amid headwinds around exchange fees and regulatory concerns. In recent weeks, several high-profile projects such as Arbtitrum and Blur have announced airdrops. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.