Bernstein Says Crypto Will Resurgence As Safe Haven Buy Bitcoin
by Arthur · April 27, 2023
Many investors are still sleeping on bitcoin’s potential as an alternative financial system, but the US banking crisis is laying the groundwork for a crypto revolution that will lead bitcoin through its next phase of adoption, says Bernstein. Bitcoin was originally designed, after the 2008 financial crisis, as digital cash that does not rely on banks. Not long after its creation, however, many of its holders began comparing it to gold due to its low correlation with other assets, making it seemingly useful as a store of value and a hedge against uncertainty. Recently, it has been trading like a high-risk tech stock, thanks to the latest wave of new adopters. However, that has changed since the beginning of the last banking crisis, as ordinary people have witnessed deposit runs and bank failures at regulated US banks triggered by high interest rates – namely Silicon Valley Bank and Signature. This week, continued problems at First Republic Bank helped drive bitcoin’s price action again. “The gap between Treasury rates and bank deposit rates will continue to erode banks, with weak balance sheets leading to another round of mass migration to money markets,” Bernstein analysts Gautam Chhugani and Manas Agrawal said in a note on Wednesday. “To save the ship, the Fed will have to resort to dollar debasement and money printing again, bringing back Bitcoin’s role as digital gold.” “What will follow, in our view, is a new crypto cycle, led by mass migration to self-custodial wallets used as on-chain savings accounts and a Cambrian explosion of financial innovation on the blockchain.” The shift back to the digital gold narrative has begun, since the recent deposit runs and bank failures at regulated US banks, triggered by high interest rates. By mid-March, bitcoin’s correlation with both gold and the S&P 500 had reversed. A couple of weeks later, the gold correlation surpassed the Nasdaq correlation. It could just be the beginning, the analysts said. “As the second-order effects of deposit runs continue (credit freeze, margin squeeze, asset quality issues), we expect the banking sector to begin to reveal cracks, pushing the Fed to downgrade the dollar earlier,” the Bernstein analysts said. Eventually, and perhaps not too far off, the pressure on traditional banks will push customers to adopt the most fundamental principles of crypto, such as self-custody and transparency, into their own banking experiences. The idea that an individual can “be their own bank” may have been too futuristic for the mainstream for the past decade, but Bernstein says the day is coming. “The safe harbor signal will lead to a new crypto cycle, pushing digital wallets as on-chain savings accounts,” the analysts said. “Each cycle pushes forward the crypto adoption curve led by a key innovation and more mainstream adoption. We believe 2023 will be about hyper-scaling, growth of self-custodial wallets and adoption of decentralized finance by both retail and institutional participants.”
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