Why Bitcoin, Solana and The Sandbox surged over the weekend
What happened
Don’t look now, though Bitcoin (BTC 2.85%) and other major cryptocurrencies have made big moves over the weekend. As of 8:30 a.m. ET, Bitcoin, Solana (SUN 8.21%)and The sandbox (SANDY 0.13%) have gained 5%, 14% and 8.9%, respectively, since 4pm ET Friday. These moves have resulted in Bitcoin crossing the $28,000 mark, its highest level in nine months.
This move also comes on a weekend where more drama played out in the banking sector. Credit Suisse was bought out by another Swiss bank UBS Group in one of the most shocking consolidations among major global banks since the Great Recession.
So what
This $3.3 billion deal for Credit Suisse (less than half of Friday’s closing price) comes with a number of liquidity provisions and guarantees. However, this deal essentially wipes out $17 billion in additional bonds (AT1), leading to market concerns about the health of the $275 billion AT1 bond market in Europe.
The resulting moves by central banks globally to coordinate US dollar swap arrangements, in an effort to inject liquidity into the global financial system, date back to times of severe global economic stress (namely the pandemic and the Great Recession). So the US dollar has shown weakness this morning, with equity markets expected to open roughly flat.
The rise in crypto prices today appears to reflect the view among a significant subset of investors that digital currencies may have some value as a hedge against what could be currency pressures in the US and other developed economies.
What now
Whether this safe harbor view is justified will be determined over time. That said, Bitcoin has traditionally been seen as an asset class that should hold up relatively well, given its size and decentralized nature, in times like these.
For Solana and metaverse crypto project The Sandbox, it appears that the large gains investors have seen over the weekend are related to these projects’ higher risk status within the digital asset space. With most cryptocurrencies taking a hit over the weekend, it’s probably no surprise to see higher-risk digital assets making bigger gains during this uptrend.
I remain uncertain to what extent contagion issues surrounding the global financial system will remain a bullish catalyst for major cryptocurrencies. But for those who have diversified into this asset class (at least in part) because of the diversification and potential hedging these cryptos provide, this trade has worked well so far.
