Bitcoin rises above $26,000 as ‘store of value’ narrative strengthens amid bank failures
Bitcoin, the world’s largest cryptocurrency by market capitalization, rose 36.06% in the week from March 10 to March 17, to trade at USD 26,795 at 19:00 on Friday in Hong Kong. Ether rose 26.67% over the same period to $1,750.
However, the stock markets had a turbulent (understatement) week due to fears that cracks would appear in the American banking system.
It started the week before when Silvergate Bank went into voluntary liquidation after a bank run and the shares plummeted. Regulators then quickly shut down Silicon Valley Bank (SVB) and Signature Bank, two major lenders to the tech and crypto industries, to avoid panic and the risk of a systemic bank failure.
It was serious enough that US Treasury Secretary Janet Yellen contacted the White House on the weekend of March 11 to get approval from President Joe Biden to initiate the takeovers. The Treasury then issued a joint statement with the Federal Reserve and the Federal Deposit Insurance Corporation, securing a backstop for US banks.
Biden repeated the same message during the week as traders drove down the shares of other US regional banks. The focus shifted to Europe as global investment bank Credit Suisse began to falter, prompting a US$54 billion lifeline from the Swiss National Bank. On the US side, 11 financial institutions had to step up to inject $30 billion into First Republic Bank after its share price fell.
Despite the cross-bank issues, Bitcoin remained resilient, falling only briefly to $19,654 on March 10, before regaining the $20,000 level the next day and moving higher throughout the week.
“While the US banking system clamped down in response to bank runs that threatened regional banks, Bitcoin, Ethereum and other crypto networks didn’t skip a beat,” tweeted Cathie Wood, founder and CEO of investment management giant Ark Invest.
Amid recent regulatory backlash against crypto platforms, Wood apparently couldn’t resist making the point: “Instead of blocking decentralized, transparent, auditable and well-functioning financial platforms without central points of failure, regulators should have been focused on the centralized and opaque. points of failure that threaten the traditional banking system.”
James Wo, founder and CEO of crypto investment firm DFG, shares Wood’s sentiments.
“The market’s confidence in traditional finance was dented, leading to a movement of funds into the crypto market,” Wo wrote in a LinkedIn response. Bitcoin “has demonstrated its superior risk and inflation resistance as an alternative asset, and will be further recognized by the mainstream,” he said.
Bitcoin then surged above the USD 26,000 mark on Tuesday following the release of the US Consumer Price Index (CPI), which indicated a fall in the annual inflation rate to 6% in February.
However, Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence, said Bitcoin’s rally was really driven by the earthquake in US banking, not the CPI reading.
“Bitcoin has been a strong bet since last Friday when it became clear that the US banking system was in trouble. The real story is the 25% rally from then. The peak to USD 26,000 on the CPI printout is noise, because the number came in in line with expectations and it quickly fell back below USD 25,000 – a level that I believe is critically important from a technical perspective,” Coutts wrote to Discard.
Slava Demchuk, co-founder of AMLBot, an anti-money laundering crypto software developer, attributed Bitcoin’s rally to investor hedging.
“[Bitcoin’s rally] is not necessarily due to widespread recognition of the non-custodial potential of digital assets such as Bitcoin or Ethereum, but as a means of protecting against traditional financial systems,” Demchuk wrote.
Bonnie Cheung, chief strategy officer at Sending Labs, a software firm that builds Web3 communication protocols, said the global government interventions will help Bitcoin reach new heights.
“The quick move by the Swiss government to support Credit Suisse has certainly given the market an olive branch to hold on to in the coming weeks. This, together with the action by the US government, has now set a precedent. The expectation is that governments will not hesitate to to kick in if a major banking crisis begins to unfold in the coming weeks. This will further ignite the bullish sentiment and build the narrative to push Bitcoin to test new highs,” Cheung wrote.
The global crypto market cap was $1.14 trillion as of 7:00 p.m. Friday in Hong Kong, up 23% from $923 billion a week ago, according to CoinMarketCap data. Bitcoin’s market cap of US$520 billion accounted for 45.2% of the market, while Ether’s US$215 billion accounted for 18.7%.
See related article: Banks bring systemic risk to crypto, says Circle’s Disparte
Biggest Gains: CFX, STX Rise Over 100%
CFX, the utility token of Conflux Network, China’s only public blockchain, was this week’s biggest gainer among the top 100 coins by market capitalization listed on CoinMarketCap. CFX rose 105.99% during the week to trade at $0.317.
The token started to take off after Conflux announced that KuCoin Ventures invested $10 million in the protocol. Conflux also introduced CNHC, a CNH stablecoin for cross-border payments.
STX, the native symbol of Stacks, Bitcoin’s smart contract layer, was the second biggest gainer of the week, up 100.13% to $1.09. The token has seen increased interest after its upcoming hard fork, Stacks 2.1, was announced for March 20. The upgrade aims to create a stronger interconnection between Stacks and Bitcoin by introducing decentralized mining pools, improved bridges and enabling compatibility between Stacks native assets – such as Ordinals – and Bitcoin wallets.
Next week: Bitcoin to USD 28,000?
“Right now, systemic risk is in the main role in investors’ minds. It has been over 10 years since the European sovereign debt crisis and the global financial crisis. While this banking crisis appeared to have started in the US, the situation in Europe with Deutsche and Credit Suisse has been a slow-motion train wreck for years,” Coutts wrote.
“Short term is not my forte, but if we finish with a weekly close above $25,000, then I would have to adjust my model regime to be positive as that would signal that we have completed a bottoming process that started in mid-2022 and a new bull cycle is underway,” Coutts added.
DFG’s Wo said that macroeconomic trends in the US, upcoming interest rate hikes and global banking problems will remain the most important factors for traditional and crypto markets in the coming weeks.
Kadan Stadelmann, CTO of blockchain infrastructure development firm Komodo, said that the fragile economic landscape in the US is currently the main driver of Bitcoin prices.
“The Federal Reserve embarked on a multi-trillion dollar program of quantitative easing, cutting bank minimum reserves from 10% to 0% on March 26, 2020, and ushering us into the current battle with inflation, which has people seeking alternative ways. to preserve wealth. Bitcoin has become a prominent alternative,” Stadelmann wrote.
“Bitcoin won’t see any resistance before the $30,000 level for now. If a systemically important bank like Credit Suisse collapses, it could bring the market down to $9,000-13,000,” he said.
“In 2020, when the markets collapsed, Bitcoin was among the first commodities to recover. Bitcoin is still well away from its all-time highs and could quickly double to retake its old highs, especially if the Fed reverses course and goes into time with a new quantitative easing program, Stadelmann said.
Mayank Shekhar, co-founder and chief technology officer of games to earn the game One World Nation, said Bitcoin is increasingly perceived as a store of value and he expects it to trade between $24,000-$27,000 next week in the run-up to the Fed meeting about interest on 21 and 22 March.
Aziz Kenjaev, head of partnerships at the decentralized crypto exchange GammaX Exchange, expects the crypto market to cool down before the Fed’s rate decision.
“As for Bitcoin, I expect a retest of USD 22,350-22,250 over the weekend, but the main focus remains on Wednesday’s interest rate decision. The Fed is expected to raise interest rates by 25 basis points, any figure above this estimate will act as a strong bearish sentiment for the US dollar, and a strong bullish sentiment for Bitcoin.In this regard, I expect Bitcoin to reach USD 28,100 next week.
