Why Another Bitcoin Boom Could Be the Key to Institutional Adoption. Should you buy in?

As bitcoin soars amid banking turmoil, armchair economists, politicians, Twitter heads and blockchain industry leaders have their take on the factors behind the native cryptocurrency’s recent jump. Between March 10 and March 22, the price of BTC rose 45% from $19,700 to over $28,600.

It’s hard to ignore the fact that this (somewhat) unexpected jump coincides with the Silicon Valley Bank and Signature collapses and Credit Suisse’s restructuring under its former competitor, USB. Although not nearly the size of Lehman Brothers and the like, we are experiencing the first major banking crisis since 2008. Since the whole purpose of bitcoin is to provide an alternative to banks, it will be instructive to observe the crypto markets in the coming months. That’s even before considering inflation, which in theory is supposed to drive bitcoin adoption as a safe haven.

And there is precedent for bitcoin breaking from broader markets. At the onset of the COVID-19 pandemic in March 2020, bitcoin fell from over $9,000 on March 6 to $4,826 by March 12. The fall coincided with a stock market crash that led some to announce the end of bitcoin.

How can a “safe haven” asset respond to market shocks in the same way that stocks do? Of course, the price eventually returned to pre-COVID levels in July of that year and then began to take off steadily in late 2020 before reaching $61,195.3 on March 13, 2021.

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It is still a little too early to say that bitcoin is on a similar trajectory. A few influences contributed to the increase in BTC’s value during the covid era, especially the stimulus checks that pumped money into the economy. Other factors such as the NFT boom, play2earn and the bitcoin halving event helped expand crypto’s mainstream footprint.

We are in a completely different economic environment today. Most notably, the “free money” era has infamously crashed and burned with the collapse of FTX, 3AC and others. VCs are tightening their budgets, as are companies more generally. We’re simply not at a point where serious startups are going to find it easy to raise money, let alone random NFT projects.

Still, other factors at play beyond inflation could drive a crypto renaissance. First, we are a year away from the next bitcoin halving event. During the halving events, the rewards for mining bitcoin are halved, which in theory is supposed to halve the supply. Assuming demand remains constant or rises, it is supposed to drive up prices. There is still debate as to whether the halving events are priced in, but some have argued that the previous halving event also played a role in the last bull run.

Related: 5 Things to Expect from Crypto in 2023

But there is a more important factor that threatens the industry here. A recent study by four economists suggests that some 190 US banks are also at risk of collapse amid uninsured bank runs. Of course, not all of them will, and this is probably not the doomsday scenario that will drive what bitcoiners call “hyperbitcoinization” — a kind of bitcoin utopia where people trade in bitcoin and central banks add bitcoin to their balance sheets. Still, it could lead to retail investors adding bitcoin to their portfolios and banks starting to offer crypto services.

Investors are already eager to diversify their portfolios with traditional asset classes and bitcoin. Banks would do well to seize that opportunity, especially now. That is especially true, considering that banks have extensive experience dealing with regulatory bodies to take this on more effectively than crypto-native platforms.

But for some financial institutions, especially smaller and more localized ones that don’t have the resources to build their own solutions to mirror those used by decentralized finance (DeFi) platforms, overcoming the technological barriers can be daunting.

However, there are players who are working to speed up banks and traditional institutions, large and small. The self-custody platform GK8, for example, actively helps institutions securely manage digital assets while supporting staking and other DeFi services.

There is an entire industry of technological solutions to help banks take in crypto because the institutional demand is there. Regardless of the overall health of TradFi or the market cap of the crypto industry, banks have already begun integrating bitcoin and other digital assets into their balance sheets. And whether bitcoin enters a bull market now or later, demand will continue to rise.