Why is bitcoin rising after SVB’s collapse?

For more than a decade, bitcoin bores have been banging on about cryptocurrency as the future of money. The emergence and spectacular growth of digital currencies, according to these evangelists, proves that the financial system on which we all depend is broken. After all, Bitcoin was created in 2009, after the Great Meltdown of 2008, as a revolutionary concept to combat the corrosive global power of central banking. Bitcoin was presented as the new digital gold. It was limited in supply and could not be centrally controlled – its value could not be distorted by quantitative easing and morally bankrupt governments hooked on debt. Bitcoin wasn’t just for buying illegal stuff online. It was a way for the little guy to stick two fingers up at a financial system that allowed the poor to suffer while always bailing out the big banks and the super rich. In the great tragedy of capitalism was crypto deus ex machina.

By the mid-2010s, bitcoin had blossomed into something else. Major investment funds dipped their billion-dollar toes into the big crypto pond, and it became a speculative asset. Then came the pandemic, the biggest government handout of all time, and cryptocurrencies started mimicking the stock market. As the Federal Reserve and other central banks pumped more and more money into the troubled global economy, bitcoin and others soared to astronomical heights.

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But bitcoin was not so much a hedge against inflation as a bet on it. The price of one bitcoin hit a record of £44,000 in November 2021. As governments tried to tackle post-pandemic inflation, bitcoin immediately crashed at the first hint of severe quantitative tightening. It fell every time the Fed made “hawk noises” or raised interest rates. Since the middle of the pandemic, bitcoin was not a store of value or a mechanism of exchange – just a volatile indicator of nervous market sentiment.

But in the last ten days since, since the collapse of Silicon Valley Bank, something has changed again. Markets have wobbled and dipped as everyone tries to figure out whether the failures of SVB, Signature Bank and Credit Suisse could mark the beginning of another financial Armageddon. Still, since March 10, bitcoin has risen more than 30 percent. For the first time in months, it is rising dramatically as markets fall. The crypto-evangelists are beginning to feel redemption.

It’s probably a mistake to read too much into this bump – I should state that I still have a small amount of bitcoin and ethereum, so I’m biased. Crypto is extraordinarily volatile – the latest spike could be a lot of Silicon Bro money being redistributed from speculative tech investments back into crypto. It could be a result of millions of punters betting that the latest spasms in the market mean the Fed will have to halt its efforts to curb inflation through higher interest rates.

But it could be something completely different: Since 2008, the financial markets have been increasingly dependent on massive central bank interventions. We are beyond ‘moral hazard’ and fully into Crisis Economics, a world where financial players try to scare central banks into acting ever more dramatically to avoid ‘system failure’. In such a world, rational people inevitably ask whether there is something deeply wrong with the way money works now and whether we need a new system. In other words, maybe the bitcoin drillers were right all along.