Bitcoin has been strengthened by the banking crisis – and these two other factors, JPMorgan strategist says

By Steve Goldstein

Critical information for the US trade day

It’s an extremely volatile asset, of course, but at the time this story was being prepared, bitcoin was up an incredible 69% (nice) this year. Gold — the bitcoin analog, if you will — has gained 11%, while the S&P 500 is up 7%.

There is a logical basis behind both bitcoin and gold’s appreciation: problems in the traditional banking system, which to date has seen the collapse of SVB Financial, Signature Bank and Silvergate Bank and a systemically important institution, Credit Suisse, handed over to UBS. Western Alliance Bancorp’s ( WAL ) share price plunge of 12% on Wednesday, after the lender failed to disclose deposit outflows, appears to indicate that the crisis is not entirely over.

“For crypto supporters, the US banking crisis exposed the weaknesses of the traditional financial system given that banks’ maturity mismatches are prone to bank runs,” said Nikolaos Panigirtzoglou, global market strategist at JPMorgan. “Crypto proponents have long argued that the crypto ecosystem is superior, not least because deposits are held in entities such as stablecoins which, as a digital form of money market fund, are 100% backed by high-quality liquid assets and are thus less prone to run.”

But Panigirtzoglou also notes two other supports, which are not as well known. He talks about the launch of bitcoin ordinals, which enable non-fungible tokens, or NFTs, directly on the bitcoin network. “This is because metadata such as text, images can be written onto the bitcoin network itself, without relying on smart contracts as seen with other blockchains, where NFTs are created through smart contracts,” he says. If there is a boom similar to the recent NFT bull run, transaction fees could be driven higher, which would increase miners’ earnings.

And he looks forward to an event next year – in April 2024, when bitcoin will be halved, as it happens once every four years. Like stock splits, it can have a positive impact despite not really changing anything. “While this is some way off ceteris paribus, this would mechanically double bitcoin’s production cost to around $40k, creating a positive psychological effect. This is because bitcoin’s production cost has historically acted as an effective lower bound,” he says.

The previous halving events, in 2016 and 2020, were accompanied by a bullish trajectory afterwards.

The market

US stock futures were lower, with the S&P 500 contract down 0.1% and the Nasdaq 100 contract down 0.4%. The yield on the 10-year Treasury was down for a seventh session in a row.

For more market updates plus stock, options and crypto action ideas, subscribe to MarketDiem by Investors Business Daily.

The uproar

A major change in the seasonal adjustment factors has changed the unemployment series this year. Initial claims in the week ending April 1 fell 18,000 to 228,000, but that’s after a massive 48,000 upward revision for the previous week. Economists at Goldman Sachs had flagged the possibility of such a shift.

A judge denied an attempt to speed up the resolution of a shareholder battle over AMC Entertainment’s ( AMC ) ability to convert its so-called APE shares into common stock.

Costco Wholesale ( COST ) reported its first monthly same-store sales in nearly three years.

Britain’s competition regulator said it is considering whether Amazon.com’s ( AMZN ) $1.7 billion deal to buy iRobot ( IRBT ) will reduce competition, a step before launching a formal investigation.

French President Emmanuel Macron visited China and met with Xi Jinping, while at home protests continued over his plan to raise the retirement age by two years.

The best from the web

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Top tickers

Here were the most active tickers on MarketWatch as of 6 a.m. Eastern.

Ticker  Security name 
TSLA    Tesla 
AMC     AMC Entertainment 
BBBY    Bed Bath & Beyond 
GME     GameStop 
APE     AMC Entertainment preferreds 
BUD     Anheuser-Busch InBev 
NVDA    Nvidia 
AAPL    Apple 
MULN    Mullen Automotive 
NIO     Nio 

The diagram

Friendshoring is a real thing, economists from the International Monetary Fund conclude. Over the past decade, the share of foreign direct investment flows among geopolitically aligned economies has continued to rise, more than the share for countries closer geographically, the IMF says. As long-term flows fragment, the IMF estimates a drag on global output of close to 2%.

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-Steve Goldstein

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04-06-23 0917ET

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