Credit Cracks in Wall Street Shake Bitcoin, but Fed’s Next Move Could Spark a Comeback

A wave of credit anxiety rippled through U.S. markets on Thursday, dragging both regional bank stocks and Bitcoin lower as investors began to spot the first visible cracks in traditional finance. The trigger came from renewed concerns over bad loans and bankruptcies, fueling fears that more trouble could be lurking beneath the surface — a reminder of the old saying, “when you see one cockroach, there are probably more.”

Several regional lenders were hit particularly hard as fresh losses emerged from troubled loans and legal disputes. Zions Bancorp and Western Alliance fell sharply after disclosing new charges and lawsuits tied to delinquent borrowers. The pain wasn’t isolated: the broader regional banking sector took a notable hit, reviving memories of last year’s bank turmoil that briefly rocked financial markets.

Yet, despite the stress in banking stocks, Wall Street’s main indices held up relatively well, with the S&P 500 edging less than one percent lower. Investors, however, turned defensive — gold surged another 2.5% to a new record near $4,300 an ounce as traders sought safety. Bitcoin, often dubbed “digital gold,” failed to attract the same haven demand. The world’s largest cryptocurrency slipped over 3% to around $108,000, extending a week-long decline of nearly 11%.

This mirrored earlier patterns seen in times of financial strain. When the pandemic struck in March 2020 and during the regional banking crisis of 2023, Bitcoin initially fell alongside stocks before rebounding in spectacular fashion once the Federal Reserve intervened with liquidity support and aggressive rate cuts.

Now, history may be poised to repeat itself. Bond markets are signaling that investors expect the Fed to pivot toward easing sooner than anticipated. The 10-year Treasury yield has dropped to 3.97%, its lowest since April, while the two-year yield — a key barometer of policy expectations — plunged to 3.42%, a level not seen in over three years. Futures markets have even begun to price in a small but growing chance of a rate cut at the Fed’s upcoming meeting.

If policymakers respond to emerging credit stress with monetary relief, as they have in the past, it could mark the beginning of the next bullish chapter for Bitcoin. After all, every major crypto rally over the last decade has followed a period of central bank easing and liquidity expansion.

For now, the market’s message is clear: credit fears are rattling confidence in traditional finance, Bitcoin remains vulnerable to risk aversion, but the Fed’s eventual reaction might once again turn today’s weakness into tomorrow’s rally.