Here’s why bitcoin is surging after the collapse of Silvergate, SVB and Signature

by James · March 14, 2023

By Frances Yue

Bitcoin is seeing its best three-day performance since October 2019, when the collapse of three US banks in one week fueled some investors’ hopes that the Federal Reserve may have to take a less aggressive approach with its rate hikes.

The biggest cryptocurrency on Tuesday climbed to its highest level since June 2022, up 8% over the past 24 hours and up 30% over the past three days, according to CoinDesk data.

Last Wednesday, Silvergate Bank ( SI ) said it would liquidate and return money to depositors, and over the weekend Silicon Valley Bank and Signature Bank ( SBNY ) were shut down by the Federal Deposit Insurance Corporation. The Federal Reserve on Sunday announced an emergency lending program to stop depositors at both banks and across the banking system.

Some market analysts believe the Fed may be forced to take a less aggressive approach to its rate hikes as a result given the risk of contagion to other regional banks.

Read: Banking industry turmoil could spell more pain for stocks as Fed’s battle with inflation drags on

The repricing of expectations for the Fed’s interest rate movements may invite a more investor-friendly market environment, according to Joel Kruger, market strategist at LMAX Group.

The Dow Jones Industrial Average rose more than 81 points, or 0.3%, on Tuesday. The S&P 500 rose 0.9% and the Nasdaq Composite rose 1.4%, according to FactSet data.

In recent years, bitcoin has been traded mainly as a risky asset and often in tandem with US stocks. However, the crypto’s recent outperformance relative to stocks could point to a potential shift in the narrative surrounding the cryptocurrency, which is decentralized and has a maximum supply of 21 million, market participants said.

“Often mistakenly thought of as an inflation hedge, Bitcoin should be seen as a protest against the banking system and monetary policy,” Alex Thorn, head of research at Galaxy Digital, wrote in a Monday note. “In general, the core value of decentralized cryptocurrencies is the ability to be your own bank, make your own payments, and opt out of the traditional financial system,” Thorn wrote.

Aaron Rafferty, CEO of Standard DAO, echoed the point. “Essentially, everything that’s happening to the banking industry today is why bitcoin was created back in 2008 after bankers lost billions of dollars of taxpayers’ money and failed to uphold their fiduciary duty,” Rafferty said.

Still, Mina Tadrus, CEO of Tadrus Capital, said he believes the recent upswing is simply part of crypto’s natural volatility.

Investors remained concerned that the closure of crypto-friendly Silvergate and Signature would further limit digital asset companies’ access to banks in the US, making it more difficult for institutions to buy cryptocurrencies with fiat currencies, weighing on the liquidity of the crypto market.

Read more: Signature collapse, Silvergate could create crypto liquidity problems as banks shy away from purchases

With the price increase, both bitcoin’s trading volume and volatility rose to the highest level since November 2022, when crypto exchange FTX collapsed, analysts at K33 Research wrote in a Tuesday note.

From a technical perspective, if bitcoin’s price can hold above $25,000, a key support level, it could set the stage for the next big push to the top, LMAX’s Kruger said. However, if the crypto fails to hold above that level, it will open the door for more correction and consolidation, Kruger said.

The next resistance level is $30,000, where there has been a lot of concentrated options activity, noted Greg Magadini, director of derivatives at Amberdata.

– Frances Yue

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03-14-23 2027ET