Investors show nervousness as U.S. regional banks contribute to significant losses in risk assets.

On May 4th, as the US equities market showed signs of anxiety over the resurgent banking crisis, Bitcoin dropped below $29,000 during the Wall Street opening.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

US banks overwhelmed with ‘too much all at once’”

According to TradingView data, as the S&P 500 lost 0.7%, BTC/USD also suffered losses.

U.S. regional bank stocks experienced more chaos, with PacWest Bancorp leading the way with a 50% drop on the day, despite already major losses of 86.5% year-to-date.

The bank claimed its position was “solid.” Despite reassurances from U.S. authorities about banking system stability, many analysts expressed doubts as the crisis persisted, causing confusion.

Within the last 24 hours:

1. PacWest Bank, $PACW, explores potential sale

2. Western Alliance Bank, $WAL, explores potential sale

3. First Horizon Bank, $FHN, cancels merger with TD Bank due to “regulatory concerns”

4. Fed says “banking system is sound”

5. No comment from…

— The Kobeissi Letter (@KobeissiLetter) May 4, 2023

“For the first time in weeks, equity markets are responding to the banking crisis,” financial commentary resource The Kobeissi Letter wrote in part of Twitter coverage.

Kobeissi argued that the latest Federal Reserve interest rate hike, confirmed as 0.25% on May 3, had added fuel to the fire.

“Perhaps this is the equity market worrying that the crisis may not be isolated,” it continued.

“The Fed rate hike is only making things worse.”

In addition to PacWest, First Horizon and Western Alliance were two more major losers on the day, down 53% and 38%, respectively.

“Confidence in a financial institution is built over decades and destroyed in days,” Bill Ackman, CEO of hedge fund management firm Pershing Square, continued in his own response.

“As each domino falls, the next weakest bank begins to wobble. Until investors are rewarded for betting on a wobbling bank, there will be no bid, and the best sale is the last price. We are running out of time to fix this problem.”

In a dedicated blog post on the crisis, meanwhile, Marty Bent, founder of crypto media firm TFTC, described it as a point of no return.

“Everywhere one looks things look absolutely terrible for the US financial system. This feels like the endgame,” he warned on May 3.

“I find it hard to believe there is anything that can be done to restore confidence in the system. No amount of backstopping, money printing, buybacks, consolidation, or World Wars will be able to put this genie back in the bottle. The Fed and the Treasury will try their hardest to make the public believe otherwise, but this is simply too much all at once.”

SPDR S&P Regional Banking ETF (KRE) 1-day candle chart. Source: TradingView

The significance of $28,800 BTC price highlighted by weekly chart

Turning to Bitcoin, BTC/USD found itself in an area of low liquidity at the time of writing, with large-volume traders staying away.

Data from the Binance order book uploaded to Twitter by monitoring resource Material Indicators showed bid liquidity slowly increasing above $28,000.

Material Indicators on Twitter: "If you are wondering why yellow is buying #BTC here and brown mega whales haven't, it's not likely retail vs smart money. It's because liquidity between here and $29.1k is so thin that the slippage on a whale sized order would be significant so they are literally forced to make... pic.twitter.com/foZLhWeSuR / Twitter"

If you are wondering why yellow is buying #BTC here and brown mega whales haven't, it's not likely retail vs smart money. It's because liquidity between here and $29.1k is so thin that the slippage on a whale sized order would be significant so they are literally forced to make...

While some popular traders demanded higher returns to reach the $30,000 resistance level, others remained optimistic in the long term.

Rekt Capital, a popular trader and analyst, emphasized the current spot price levels as crucial for a successful reclaim operation, noting that BTC had held the $28,800 level as support for the week and had experienced aggressive buying in recent days.

“Reclaim of the $28800 level is technically in progress.”

BTC/USD annotated chart. Source: Rekt Capital/Twitter

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