Bitcoin reverses lower after briefly topping $30,000 again

Cryptocurrencies slipped in late trading on Wednesday, erasing losses from an earlier rally.

Bitcoin ended the day higher by less than 1% at $27,580.88, according to Coin Metrics. Ether fell about 1% to $1,835.88.

Earlier in the day, bitcoin jumped as much as around 8% and briefly regained the $30,000 level. That helped lift ether, which rose more than 6% at one point to around $1,950.

Bitcoin had been trading sideways for several days, with volatility returning to early March lows, before the banking crisis began and became one of the cryptocurrency’s biggest upside catalysts this year. As of late Tuesday, problems at First Republic helped drive the cryptocurrency’s price action again, according to Matt Hougan, chief investment officer at Bitwise Asset Management.

“Crypto rallies during banking crises, and it looks like the banking crisis may not be over,” Hougan said.

First Republic shares fell nearly 30% on Wednesday, bringing two-day losses to about 80%, after reporting a massive drop in deposits in the first quarter as customers pulled their money out following the collapse of Silicon Valley Bank. CNBC’s David Faber reported that the next few days are crucial for the company, as other banks and federal officials try to put together a rescue plan.

Bitcoin surged 22% in March as the crisis among US regional banks opened investors’ eyes to potential uses as a hedge against uncertainty and as an alternative banking system.

“Bitcoin continues to straddle the line between being the ultimate lifeboat from the current banking system and the leading asset risk,” said managing partner James Lavish at the Bitcoin Opportunity Fund. “With the First Republic now on the brink of collapse, bitcoin represents a safe haven versus unsafe bank deposits.”

Bitcoin’s 30-day rolling correlation with gold has climbed since March and now stands at 57%, the highest level in nearly two years, according to crypto data provider Kaiko. The correlation with the S&P 500 fell further in April to just 7%.

Fat worries on the horizon

Although the pullback over the past week did not reverse the uptrend so far this year, there is still uncertainty surrounding crypto.

Traders are watching the Federal Reserve for its latest decision on whether it will stop raising interest rates to combat high inflation and some direction, and when it will start cutting rates. The central bank’s next policy meeting will take place next week, and the latest reading on its preferred inflation gauge, personal consumption expenditure, will come out at the end of this week.

“The crypto market learned last month that the banking crisis works well for bitcoin’s price, but we need to approach it from multiple angles,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank. “The Fed Funds futures market is pricing in the beginning of rate cuts later this year, and it could be a source of disappointment if the Fed continues to refrain from commenting or even denying the possibility of rate cuts this year.”

Crypto remains in its uptrend so far this year. The resistance level between $28,800 and $29,000 could be a “tough ceiling to break” until Friday’s PCE announcement, he added.

— CNBC’s Gina Francolla contributed reporting