Bitcoin hovers around $28,000 as banking woes return. Will it reach $30,000?
Bitcoin, the world’s largest cryptocurrency by market capitalization, rose 4.82% in the week from March 17 to March 24 to trade at USD 27,926 at 9.30pm on Friday in Hong Kong. Ether rose 1.65% in the same period to $1,772.
“Increasing activity on the Bitcoin network is causing profitability to recover to levels consistent with the start of previous bullish cycles. The network remains expensive relative to transaction values, but less so than in early February,” wrote Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence, in a research note shared with Discard.
Maxwell Goldstein, co-founder of Freeport, a chain-based art investment platform, said this week’s price action was mainly driven by the US Federal Reserve’s monetary policy decision.
The Federal Reserve raised its key interest rate by an expected 25 basis points on Wednesday. Bitcoin fell 1.94% to US$27,676 the day after the rate hike, also pressured by market worries about a banking crisis after US Treasury Secretary Janet Yellen said the government is not considering an “insurance cover” on bank deposits.
“Traders are flocking to Bitcoin and similar assets to diversify their holdings. Recent bank failures have also strengthened the case for investing in Bitcoin, along with murmurs of hyperinflation,” Goldstein wrote, adding that due to looming fears of inflation, “seeking investors certainly a safe haven, and Bitcoin fits the bill.”
The global crypto market capitalization was at $1.17 trillion on Friday at 9:30 p.m. in Hong Kong, up 2.6% from $1.14 trillion a week ago, according to CoinMarketCap data. Bitcoin’s market cap of $537 billion accounted for 46.3% of the market, while Ether’s $216 billion accounted for 18.6%.
Banks vs Bitcoin
“In recent months, officials have seen attempts to cut liquidity from the crypto ecosystem, underscoring why Bitcoin matters and how desperate central planners are to prevent the fiat credit system from imploding,” Coutts wrote.
Coutts referred to recent Black Swan events such as the liquidation of crypto-focused bank Silvergate, which provided lending services for major crypto companies such as Coinbase and Crypto.com.
Two other crypto-friendly banks, Silicon Valley Bank and Signature Bank, also closed operations in the same week, resulting in market concerns that crypto exchanges and companies could go unbanked.
Former congressman and Signature Bank board member Barney Frank told CNBC on March 13 that the bank’s shutdown meant “regulators wanted to send a very strong anti-crypto message.”
The New York State Department of Financial Services (NYDFS) said the next day that Signature’s closure had nothing to do with crypto and that the decision was “based on the current status of the bank and its ability to do business in a safe and sound manner. “
Coutts disagreed with the regulator, saying Signature’s shutdown was a deliberate message to the crypto industry.
“The bank [Signature Bank] was still accommodating withdrawal requests, and [the bank’s] board member Barney Frank said regulators “wanted to send a message to get people away from crypto,” Coutts wrote.
“The statement from Frank marries the data,” Coutts added. “Based on the most recently reported numbers, unrealized losses from held-to-maturity assets for Signature Bank were 27.4% of book value, below the S&P 500 bank average of 36.6%.”
Kadan Stadelmann, CTO of blockchain infrastructure development firm Komodo, said Bitcoin has always performed well in tumultuous times.
“It would be reasonable to assume that Bitcoin might behave similarly when three crypto-facing banks — Silvergate, Silicon Valley Bank and Signature Bank — collapsed one after another,” he said. Instead of a sharp drop in price, Bitcoin slipped and began to rise. “If people can’t trust banks, Bitcoin will be an advantage.”
“Investors are scrambling to find safe havens. Gold rose to $2,000 per ounce. We’ve also seen the world choose Bitcoin as a safe haven,” Stadelmann added.
Jonas Betz, a Germany-based cryptoanalyst, said Bitcoin was created to hedge against a failing banking system, but warned that closing cryptobanks could lead to a liquidity shortage.
“The recent closure of operations by Silvergate and Signature has resulted in a significant reduction in liquidity in the crypto markets. These banks provided systems (SEN and Signet) that were important in facilitating the entry of fiat currency into the crypto market. With limited options available, the industry likely to face a liquidity crisis until new banks step in. This leads to increased volatility in crypto prices,” Betz wrote.
See related article: Centralized intermediaries were the cause of crypto failures in 2022, says Voorhees
Biggest winners: MASK & FLR
MASK, the token of the Mask Network, a mobile app and browser extension that aims to bridge the gap between Web 2.0 and Web 3.0, was this week’s biggest winner among the top 100 coins by market capitalization listed on CoinMarketCap. The MASK token surged 35.43% to $6.13 and started to gain momentum on Thursday, after it listed on CoinMarketCap.
FLR, the utility token of interoperability-focused layer-1 blockchain Flare Network, was the week’s second biggest gainer in the top 100, rising 15.42% to $0.03327. The token started to take off on March 17th, after the Flare announced the first of 36 monthly airdrops for the community.
See related article: Bitcoin Fear & Greed index rises to 16-month high as investors seek safe-haven assets
Next week: Bitcoin to USD 30,000?
“The 25% increase in Bitcoin’s price from last Friday’s low has all but eliminated losses from the previous 12 months for 72.41% of the network’s BTC-holding entities,” Coutts wrote.
At the start of 2022, around 75% of these units were profitable. Today, with Bitcoin prices lower than a year ago, the average cost of a Bitcoin unit is lower than its price. This has resulted in higher profitability,” Coutts wrote.
Slava Demchuk, co-founder of AMLBot, an anti-money laundering crypto software developer, said investors should monitor the impact of the Fed’s rate hike on banks and financial institutions.
“If [banks] continues to struggle, the Fed may continue to cut interest rates, which will facilitate even more capital into the economy. This scenario will also affect cryptocurrency prices, as they often reflect these changes faster than the other financial assets,” Demchuk wrote.
Freeport’s Goldstein expects more Bitcoin volatility as the banking crisis unfolds.
“Prices are unlikely to break through the US$30,000 mark unless another major threat to the US banking system comes in. If the Fed continues to raise interest rates, Bitcoin will face increased downward pressure,” Goldstein wrote.
Alex Reinhardt, the founder of financial education platform Reinhardt Academy, said further banking problems could propel Bitcoin above $30,000.
“To reach USD 30,000 in the next week and USD 35,000 in the next 2-3 weeks seems realistic. As we have seen in the past, strong growth waves in the crypto market can quickly turn into an avalanche-like movement, triggering both panic selling and panic buying,” Reinhardt wrote.
Marat Minkin, the co-founder of DeFi payment app TONBanking, expects Bitcoin’s safe-haven narrative to fuel the rally above USD 30,000.
“The key price level remains at USD 28,600-28,750. Bitcoin’s uptrend will continue next week and the U-turn will be completed at USD 32,000 by the end of next week to end the month with a positive monthly gain,” he wrote.
See related article: Banks bring systemic risk to crypto, says Circle’s Disparte
