Bitcoin prices go up when banks go down
Illustration: Aïda Amer/Axios
Banking crises put a shine on bitcoin.
Driving the news: As one bank failed and another closed, bitcoin and other crypto got a boost, market experts tell Axios — all linking the weekend banking crisis to changed expectations.
- By the numbers: The price of the world’s largest digital asset has jumped 30% since the evening of March 10, to around $26,000 this afternoon.
The big picture: The ATM crisis changed the market’s expectations of what the Federal Reserve Board will do, said Matt Hougan, chief investment officer at Bitwise Asset Management.
- “Events like this will strengthen the correlation between crypto and other risk assets,” Hougan said.
Status: Before the collapse of Silicon Valley Bank (SVB), the market was betting on a rate hike of 50 basis points by the end of the year. Now the game rates drop so much.
Between the lines: “It’s purely mathematical,” Hougan said. “Nasdaq went up and so did crypto because the market priced in a price reversal.”
- Of note: A study published recently by New York economists questions the correlation, saying that bitcoin does not always respond to macro events in a “systematic way.”
The other side: “None of this should matter to crypto,” says Stefan Rust, CEO of inflation data aggregator Truflation. “If you think about what bitcoin was meant to be – Satoshi Nakamoto talked about a peer-to-peer electronic cash system.”
- “What drove early adoption was money transfers and purchases, so much so that people spent 10,000 BTC to buy a pizza,” he said.
Reality check: Those who are only now waking up to the value of bitcoin have to contend with long-term investors, who now hold approx three quarters of the total offer.
Is the world going to end? “Bitcoin plays into the narrative of the place to store your money in a crisis,” said Kurt Wuckert Jr., historian at CoinGeek.
- “Instability in stablecoins such as USDC and DAI has also pushed up bitcoin’s price, as investors seek a safe haven among cryptocurrencies,” said Ruadhan O, developer and founder of Seasonal Tokens, echoing Wuckert’s theory.
Flashback: Bitcoin saw its biggest single-month gain in history in the wake of the Cypriot financial crisis in early 2013, when the country’s second-largest bank issued a levy on bank deposits and took a chunk of uninsured depositors’ assets.
The intrigue: Tether (USDT) has absorbed what others have lost, Wuckert said, such as Paxos-issued Binance namesake BUSD and more recently Circle’s USDC.
- It’s a bizarre trend that would go against the idea of seeking security. Per Wuckert: “It’s like taking money out of the bank in the nice part of town and taking it to a well-known gangster bank”.
Our thought bubble: Sounds like an unintended consequence of a wayward breakdown.
