Crypto prices soared throughout the day as the turmoil in U.S. regional banking continued and interest rate hike expectations were recalibrated. 

The target rate probability of no increase next week has increased from 0% on Sunday to 32% as of 7 p.m. EST, according to the CME's FedWatch tool. The tool analyzes the probabilities of changes to the Fed rate, as implied by 30-Day Fed Funds futures pricing data.

FedWatch Target Rate Probabilities for Mar. 22

"Given recent market events, it seems unlikely that the Fed will continue an aggressive rate-raising regime. The market is mostly pricing in a 25 bps hike, but if banking issues persist, the Fed may decide to ease off entirely and halt rate increases this month," wrote Matt Maximo and Michael Zhao in a Grayscale market update.

The recent collapse of two U.S. banks has "reminded us of the risks of fractional reserve banking and could potentially drive further adoption of self-sovereign, decentralized digital assets, like Bitcoin and Ethereum," the pair said. 

The New York Department of Financial Services seized crypto-friendly Signature Bank on Sunday night in a move the state regulator said was "to protect depositors." In a separate statement, U.S. federal bank regulators guaranteed full return of Silicon Valley and Signature Bank customer deposits. 

Possible cut

Maximo and Zhao aren't alone in their thinking. Nomura analysts agreed and even went a step further to suggest the Fed will cut rates.

"In reaction to looming financial stability risks, we now expect the Fed to cut rates in 25 basis point increments in the March FOMC meeting in comparison to where we had previously expected a 50bp rate hike since 24 February," said analysts at the investment bank. 

While a 25-basis point rate cut might not seem like a panacea for financial institutions if the central bank includes continued rate cuts in the dot plot, "markets could quickly price in further rate cuts," which could "somewhat reduce the risk of further bank runs, as well as reduce unrealized capital losses," Nomura's note read. 

Nomura also expects the Fed to stop quantitative tightening.

"Although the choice of deposits vs. non-deposit investment vehicles such as Money Market Funds (MMF) matters for banks, ending QT should help keep the number of reserves more ample than they would be otherwise," the analysts said.

Prices trade higher ahead of inflation data

Bitcoin traded higher throughout the day. The leading cryptocurrency by market cap jumped about 11%, hurtling back above $24,000. Ether was also higher, adding 6% as it traded within a range of $1,700 — it briefly passed this level for the first time since mid-February earlier in the day. 

BTCUSD chart by TradingView

The actions taken by U.S. authorities over the weekend appear to have been well received, with solid momentum in crypto throughout the day, François Cluzeau, head of trading at Flowdesk, told The Block. Cluzeau said that liquidity had been impacted over the past few weeks.

"In a low-liquidity environment, price swings can be much bigger than in high-liquidity periods," he said.

Despite the moves to stem the risks posed by Signature bank and the promise to protect deposits, it was a mixed day for publicly-traded banks.

JPMorgan traded down by 1.8%; it then added 0.3% after hours. Bank of America dipped 5.8% during the day's session but gained 1.4% after hours. First Republic, the most extreme case, plunged 61% before adding 16% after hours. 

FRC chart by TradingView