Don't expect a crypto bull market from the Fed by expecting them to cut rates. The Banking Crash only gave the Fed what they wanted, although definitely not how they wanted

The banking crash has seen many wondering if the Fed will cut rates. To this, I will say that is a resounding no. The crash only gave the Fed what they wanted, although in not in the way they wanted it. By this I mean that the Fed as been absolutely struggling to fight inflation since 2021(and 2021 to a lesser degree). Inflation still stands at a whopping 6%. Ironically, it was 2020 and 2021 that gave us our bull run, as inflation pushed up all asset prices and volatile crypto say the biggest gains. Even after raising rates throughout 2022, inflation is still high and Fed chair has already said he will keep raising until markets "feel some pain". You might think that bank failures are enough pain. Nope. Not even close.

The thing about banks are that they are directly responsible for inflation. Outside of public spending by government, new money gets into the system directly through banks. So actually, a banking panic leads to less loans as banks must focus on stability and solvency over profit. This means less credit creation and less inflation. And the amount of banking credit does directly affect crypto, as it does all asset prices, as people either borrow to invest, or buy because they think others will borrow and invest. There's the double-whammy of banks lending less to stay solvent as well as people not wanting to borrow due to high interest rates as the Fed has raised so much.

Granted, the banking panic is not exactly the stable controlled way the Fed would have preferred to bring down inflation. And the Fed can't exactly ignore the banking panic if they want to keep raising rates right? Precisely. That is exactly why they have taken quite extraordinary steps, in conjunction with the Treasury and FDIC. They went so far as to guarantee all deposits, even those not covered under FDIC insurance. In addition, they have established a Treasury fund to backstop banks as well as made provisions at the Fed with their discount window and other facilities making it quite a lot easier for troubled banks to seek assistance. We have already seen record borrowing from these facilties, namely the discount window with borrows of 150 Billion. All of this actually now should it quite hard for banks to fail, assuming they are actually solvent. If either Silvergate(during the FTX crash) or SVB had access to the now present Fed facilities they would absolute be here today, as they would have been able to sell their treasuries at face value, as opposed to the steeply discounted market value. And even in the worst case, the biggest banks would probably survive this crash even if mostly all the smaller ones fall as they have massive insulation from the crash in relative terms.

But slowing inflation through credit growth/loans by banks is only have the battle. If it were that easy, rate hikes would have done a much better job by now. The Fed cannot create oil, houses, food, vehicles, new jobs or even a tenth of a Bitcoin. They can only tighten or loosen the screws to free or crush the growth on everything. They have increased rates by around 4% and inflation from a peak of 9.1% has decreased by only 3%, to 6% currently. And they want to go ALL the way down to 2% ideally. So it was clear that they needed to tighten quite a lot more, but it was also clear that the economy was not going to be able to take much more tightening pressure. Which is why the banking crash gave them exactly what they needed, in terms of slowing money growth and hence inflation, although they'd preferred not to crash part of the banking system along the way.

The Fed have made it clear that inflation is their primary focus. They, at least in their own eyes, have taken many steps to solidly stabalise the banking system so it won't be a problem. They have to keep going because ironically, worst case,it is better to let some banks fail now, rather than cut rates and inflation probably goes even higher and other structural problems get worse, and then have to raise rates even higher in the future where the problems both of inflation, economic and bank instability is even worse. Bitcoin is certainly benefiting from the banking crash but there are also other things against its price skyrocketing.

TLDR: The Fed isn't going to cut rates so don't go YOLOing into FLOKI. Best case they hold rates where they are, worst case they raise by 0.25%. The structural problems of the economy is to entrenched, and cutting rates will only entrench them further. Expanding on how Powell spoke about raising until markets feel pain, it is better to hold/raise rates now rather than feel even more pain later. They have done all they can to backstop banks, although the banking collapse will significantly help them fight inflation by lowering money growth, which is ironically how a limited banking collapse actually helps them as well.