Bitcoin is up 60% so far this year as investors rediscover its appeal as an alternative banking system
by James · March 18, 2023
Cryptocurrencies stood out this week as banking stocks tumbled and the global liquidity crunch rocked the stock market. For the week ending March 17, bitcoin ended higher by 34%, making it the cryptocurrency’s best week since January 2021 — which marked the start of that year’s institutional-led bull run. Coin Metrics measures a week in crypto, which is traded 24 hours a day, from the close of the exchange on one Friday to the next. Bitcoin is now up 62% for the year. BTC.CM= YTD mountain Bitcoin (BTC) in 2023 Ether ended the week higher by 23%. At one point, it was trading at around $1,780, a level not seen since the rise before the Ethereum merger in September. Ether is up 45% year to date. “Crypto has impressed as an unexpected banking crisis has triggered a realization that Fed policy is very restrictive and the economy is headed for a recession,” said Ed Moya, senior market analyst at Oanda. “The Fed must now decide whether it has enough information about the escalating risks that are spreading across several banks. Inflation is on the way down, but some officials may want to deliver one more rate hike before taking a break, and that could trigger a moment that reduces the risk. on Wall Street.” Bitcoin versus the banks The price of bitcoin rose twice above the key level of $25,200 to more than $26,000, according to Coin Metrics. It hasn’t seen that level since June, days before the pre-FTX bottom of around $18,000.BTC.CM= 1Y mountain Bitcoin, 1-year Bitcoin’s outperformance amid a crisis in the traditional banking system wondered if the price was rising on a potential narrative shift. Although bitcoin was originally designed to be digital cash and an alternative financial system, it spent much of last year trading as a speculative asset. Last week, even risk markets and banking stocks fell amid the uncertainty surrounding Silvergate Bank. That changed this week, however, after the closures of Silicon Valley Bank and Signature Bank gave the impression that investors were trading it for its core value, the ability to “be your own bank.” “When the financial system shows cracks, it provides an application area for decentralization,” said Callie Cox, US investment strategist at eToro. “Obviously, there are pros and cons to decentralized and centralized approaches, but for now, investors seem to be focusing on one particular angle.” But if the original bitcoin narrative started to click for people this week, it doesn’t change the fact that macro themes are still the biggest driver of price. “In practice, bitcoin is not isolated from the traditional banking system. Crypto prices rose rapidly in 2020/2021 due to central bank monetary expansion, causing capital to move from the traditional fiat banking world to the crypto world,” Sheena Shah, an analyst at Morgan Stanley, said in a note this week. “So our conclusion is that the Bitcoin network can operate without banks, but that bitcoin’s price, and thus its purchasing power, has been and continues to be affected by fiat central bank policy and needs banks to facilitate the flow of crypto.” The week ahead Many agree that the bitcoin price bottomed out in late 2022 during the collapse of FTX, but there is still a lot of uncertainty in the market and traders have found it difficult to identify what the start of a new bull run will look like. From a technical perspective, this week’s close above $26,000 could be that signal, according to Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank. However, Fairlead Strategies’ Katie Stockton sees two consecutive bars above $25,200 for the formation of a “bullish long-term trend.” Investors will continue to monitor the banking crisis and the regulatory landscape in the week ahead. On Tuesday, the Federal Reserve begins its two-day policy meeting. “Bitcoin’s rally could remain in place if the Fed chooses to end its tightening cycle and wait and see what happens next with the banking crisis,” Moya said. “Traders are pricing in rate cuts this summer already, so we’ll see what happens if the Fed chooses to remain focused on inflation and deliver another quarter point hike. A pause and Bitcoin could have the potential to run towards the $30,000 level.” Given the pulse in the markets and recent Fed comments on inflation, Moya said a final rally should be the starting point — and that could bring bitcoin back to the middle of this month’s trading range, he added.
