Bitcoin briefly climbs above $28,000 as banking crisis sparks weekend rally
Bitcoin is up 50% so far in 2023, beating major commodities and stock indexes. Industry insiders said the bank collapses have sent investors looking for alternatives to the traditional banking system, and there is also expectation of a slowdown in interest rate hikes, helping bitcoin.
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Bitcoin climbed past the $28,000 level over the weekend as investors rediscovered its appeal as an alternative banking system.
On Monday, the cryptocurrency had pulled back a bit. Bitcoin fell more than 2% to $27,705.23, according to Coin Metrics. Earlier in the day, it hit $28,554.07, its highest level in nine months. Meanwhile, ether fell 3.5% to $1,765.60.
Bitcoin (BTC) this month
The weekend’s rally in bitcoin came amid continued turmoil in the global banking sector. On Sunday, UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.2 billion) in a deal brokered in part by Swiss regulators seeking to stem contagion.
“Bitcoin continues to act as a leading risk-on asset, as it has for the past two years,” said James Lavish, managing partner of the Bitcoin Opportunity Fund. “The bailout of Credit Suisse has set off a major credit conflagration … this is bolstering bitcoin buyers who now expect the Fed to slow rate hikes and signal an upcoming pause this week.”
As of Monday afternoon, there is about a 72% chance of a quarter-point hike from the Fed, according to CME Group’s FedWatch tool. The other 28% expect no increase and that Chairman Jerome Powell may begin to ease his aggressive tightening campaign due to the new economic contagion.
Bitcoin is coming off its best week since January 2021, which was just before the first bull run of that year, while ether just posted its best weekly gain since August 2021. The two are up for the year by 67% and 46%, respectively.
Fly to safety
Proponents of bitcoin have often called it “digital gold” and refer to it as a store of value, especially in moments of global turmoil, and one that is uncorrelated with other asset classes.
Now there are signs that bitcoin’s price movement is starting to decouple from stocks, for now. The cryptocurrency’s correlation with the S&P 500 is now at its lowest since September 2021, after reaching its highest in 2022, according to Coin Metrics.
“If you look at the history of bitcoin and why it was created in the first place, it was precisely for events like this where the current system shows signs of weakness, and so it helps to own an uncorrelated asset,” Vijay Ayyar, vice president of corporate development and international on the crypto exchange Luno, CNBC told. “Over the years, this argument that bitcoin is an uncorrelated asset class has been debated quite a bit, but we are now potentially seeing that point of view being vindicated.”
Bernstein analysts Gautam Chhugani and Manas Agrawal argued in a Monday note that the market has been trading closer to its “uncorrelated non-sovereign roots” since the demise of FTX and the market structure “feels much healthier, with no more distortions caused by FTX and Alameda.”
In contrast to bitcoin and ether’s gains so far this year, returns on gold, the dollar, US stocks and bonds were “less subdued last year, but have also not declined as sharply,” and technology-dominated indices have only marginally outperformed when high-growth assets were beaten down during the rising interest rate cycle, they added.
