Is Bitcoin Benefiting from the Banking Crisis? Not what its fans hoped it would be.
Shortly after the collapse of Silicon Valley Bank this month, the price of bitcoin surged above $25,000, reaching a threshold the digital currency has not touched since June. This week, bitcoin hit nearly $30,000, up 70% for the year.
Proponents of bitcoin have seized on the rising price to argue that the banking crisis has prompted investors to switch from traditional currencies to digital coins.a crypto executive cheer Bank failures are “end of the dollar and dawn of hyperbitcoinization.”A company launched to market bitcoin to investors putter References bank runs in its promotional materials.
But despite the fanfare, there is little evidence that the recent banking meltdown has provided widespread support for bitcoin as a financial alternative.
Instead, analysts say the surge in bitcoin’s price is driven by a series of financial trends unrelated to the technology’s philosophical underpinnings. Reasons for the surge include growing optimism that the Federal Reserve may pause rate hikes and growing concerns about the safety of so-called stablecoins, a cryptocurrency designed to maintain a price of $1.
“Is there broad interest and growth in this space? Is it a lot of new money?” asked Ed Moya, a cryptocurrency analyst at trading firm OANDA. “It doesn’t seem like that’s really happening.”
According to an analysis by crypto research firm Kaiko, bitcoin’s recent rally is also a result of low liquidity, a measure of how easy it is to buy and sell a digital asset without affecting its price. Since the cryptocurrency market crashed last year, there have been fewer big financial firms buying and selling bitcoin, making the currency harder to trade. The price of Bitcoin has always been volatile, but in the current market, it can go up or down significantly with just a few transactions. According to Kaiko, the liquidity of Bitcoin reached a 10-month low last week.
“It doesn’t mean it’s a whole new wave of institutional money or anything like that because there’s a lot of price volatility,” said Kaiko research analyst Conor Ryder. “It’s more of a liquidity issue.”
Bitcoin was born after the 2008 financial crisis, when there was widespread mistrust of the banking system. Early backers touted the new technology as a safer long-term alternative to banks and traditional currencies.
This vision never materialized. Over the past 15 years, traders have largely viewed bitcoin as a speculative investment — and in some cases, a tool for money laundering and other crimes.
But the implosion of SVB — and the broader crisis it has unleashed — seems to lend credence to the original bitcoin theory.
“Bitcoin is the Clear Winner of the U.S. Banking Crisis,” op-ed by crypto publication CoinDesk Announce This month.
Since the collapse of Silicon Valley banks in early March, the price of bitcoin has risen about 40%, from $20,000 to $28,000. But that’s still a long way from bitcoin’s peak price near $70,000 in November 2021.
Problems in other areas of the crypto industry have fueled the surge in part.The banking crisis at one point jeopardized billions of dollars held by Circle, one of the largest issuers of stablecoins, leading investors to panic. Some cryptocurrency traders who held their digital savings as stablecoins are now looking for other options.
“You’re seeing some money flowing into bitcoin from stablecoins,” said Mr. Moya, a cryptocurrency analyst.
The bank run has also stoked excitement among cryptocurrency investors, who are hoping the Fed will slow down rate hikes to calm the panic. Increased funding has weakened the cryptocurrency market over the past year by making it more expensive to invest in speculative assets.
In a widely shared blog post last week, crypto critic Molly White famous The price of bitcoin started to rise when the government announced its support for SVB — an intervention that some analysts interpreted as a signal that the Fed may take further steps to calm the situation.
“If the surge was fear driven, I would have thought it would have started during the SVB bank run,” she wrote.
Last week, the Fed announced it would raise interest rates again. Since then, bitcoin’s price has remained relatively flat, holding steady at around $28,000.
Still, Bitcoin proponents say they sense an opportunity to recruit new advocates.
Cory Klippsten, chief executive of Swan Bitcoin, a financial services company that helps people invest in bitcoin, said the company has experienced a wave of new customers looking to buy the digital coin as a means of depositing money in banks. alternatives.
“They believe this is going to be the global reserve currency,” Mr Klipsten said. “This is the best moment in the history of Bitcoin marketing and Bitcoin adoption.”
Cody Candee, chief executive of startup Bounce, approached Swan this month about converting some of his company’s funds into bitcoin.
“Holding a few percent of bitcoin feels like a really good insurance policy for the dollar, the banking system, the Fed and the whole infrastructure,” he said.
But Mr Candee is hesitant to fully commit. Bounce, which operates a network of luggage storage and package pickup locations, raised $12 million in a funding round last year. Mr. Candee said he plans to spend only $200,000 on Bitcoin.
“If it drops significantly,” he said, “it won’t have an impact on the business.”