Bitcoin barrels past banking sector woes toward one of its biggest weekly gains

by James · March 17, 2023

(Bloomberg) — Bitcoin is on track for one of its biggest weekly gains in years, bolstered by bets on possible rate cuts as the token rides out spasms in the banking sector.

Most read from Bloomberg

The biggest digital asset is up about 25% since early Monday. It has had a weekly jump of at least that much only 10 times in the past five years, data compiled by Bloomberg show. Smaller coins like Ether and Dogecoin are also on the way.

The collapse of three regional US lenders and floundering at Credit Suisse Group AG are bolstering expectations of an end to the monetary tightening that pitted crypto in 2022. The rumblings are also reviving claims by Bitcoin’s most ardent backers that the token is an alternative to fiat currency.

“The current turbulence in the US banking sector, which could potentially lead to a more relaxed stance by the Federal Reserve, reinforces Bitcoin’s dual role as a hedge against traditional finance and a credible risk asset,” said Kunal Goel, a research analyst at digital-asset intelligence- the company. Messari.

Bitcoin rose as much as 8.8% on Friday, trading at around $26,880 at 7:51 a.m. in New York. Second-ranked Ether rose about 6%. Shares also rose earlier in Asia, as attempts to curb the chaos in the banking sector weakened investors somewhat.

Financial markets expect a peak in the Fed’s benchmark interest rate in May to combat rising inflation, followed by around 70 basis points this year to support economic growth.

“Any sign of a rate cut should push funds into riskier assets, which is likely to be enough to bring more institutional funds into the crypto market, regardless of whether macro traders understand or believe in the long-term Bitcoin investment thesis,” wrote Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.

The digital asset sector is also struggling with a bruising regulatory tightening in the US in the wake of the collapse of the FTX crypto exchange. The fallout from a temporary de-pegging in USD Coin – or USDC – over the weekend is also filtering through the crypto markets. USDC is the second largest stablecoin, a type of token that will have a constant value of $1.

The US Securities & Exchange Commission is doubling down on its claim that most digital assets are securities, a designation that requires greater investor protections and could make tokens more difficult to trade. However, US regulators generally agree that Bitcoin is not a security.

Bitcoin dominance

The regulatory dichotomy is helping Bitcoin, while jitters around stablecoins have led some investors to shift to the biggest digital asset, according to Markus Thielen, head of research at Matrixport.

Bitcoin now accounts for 43% of the total crypto market capitalization, the highest share since June 2022, data from CoinGecko shows.

The token has climbed around 63% so far this year and is within touching distance of its highest level since June 2022. But it is still a long way from the record of nearly $69,000 from November 2021.