Crypto marketSilicon Valley Bank (SVB) failed on March 10, and the bitcoin (BTC) price has been on a tear since then. According to CoinMarketCap, the current Bitcoin price is $27,452.41. Its daily trading volume is $47,215,804,393. Bitcoin has gained 4.89% in the last 24 hours, with a current market capitalization of $530,402,426,836.
BTC kickstarts the bull run
BTC was trading around $19,600 in the early hours of March 10. After that, it wavered just above and below $20,000 until around 12 p.m. ET, when SVB was placed in FDIC receivership. At that point, bitcoin had lost $200, falling below $20,000, before rebounding and spending the rest of the weekend trading above $20,000.
It was trading at $22,386 on Monday, March 13, at 9:30 a.m. ET. Then the good times started. Only 24 hours later, BTC was trading at $26,175, briefly approaching $26,500. It was around $27,452 at the time of publication. And so the games begin.
The rise of BTC in the face of a growing US banking crisis is similar to how it reacted during Cyprus and Greece’s banking collapses. During the Cyprus financial crisis in 2013, the price of BTC increased by up to 5,000% due to Cypriot banks’ exposure to overleveraged regional real-estate companies.
When Greece faced a similar crisis in 2015 and imposed capital controls on citizens to prevent a bank run, the price of BTC increased by 150%. So the current market decline comes as no surprise to seasoned investors. According to Federal Reserve Chair Jerome Powell, “people’s expectations of inflation have a real effect on inflation.”
United States banking system loses $100B in 2023
According to data compiled by CompaniesMarketCap.com, the six largest U.S. banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs — have lost nearly $100 billion in market valuation since the start of the year.
Bank valuations in the United States have fallen as a result of the ongoing regional banking collapse in the country. This includes the closure of Silvergate, a crypto-friendly bank, last week, followed by regulators’ subsequent takeovers of Signature Bank and Silicon Valley Bank.
The crisis was exacerbated by First Republic Bank’s near-collapse, which was saved at the last minute by a $30 billion combined injection from Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup, among others.
What has caused the crypto market to surge?
1. Bank failures
Given BTC’s history, the proximity to bank failure is obvious: At least three banks have failed, and additional banks, both American and foreign, are failing. However, because it’s not due to Bitcoin, this is positive for the price of bitcoin.
Actually, it is unclear who is to blame for the three bank failures, since it is unknown whether these banks are insolvent. But, certainly, SVB failed as a result of an old-fashioned bank run that was exacerbated by apparent weaknesses on its balance sheet resulting from poor duration risk management.
And, yes, Silvergate was experiencing difficulties and required an FHLB Loan, but its eventual closure was reportedly voluntary. And then there’s Signature Bank, where even regulators cannot determine whether the bank was closed due to crypto or a “crisis of confidence” in leadership.
These banks are not in trouble as a result of bets on bitcoin, cryptocurrency, or companies in those industries. Instead, the fractional reserve banking system appears to be under stress as a result of rising interest rates, and it is showing cracks. As the banks fail, the narrative goes, opt out and buy bitcoin. That narrative is compelling enough to drive up the price.
2. The instability of stablecoins
Following the failure of Signature Bank, the USD coin (USDC) lost its dollar peg last weekend. The USDC regained its peg during the week, but the loss of the peg alarmed many people. To USDC’s credit, it is worth noting how quickly it recovered to $1. However, its depreciation demonstrated that the USDC is not immune to counterparty risk, as some may have mistakenly assumed.
A related stablecoin story took place in the early hours of March 13 when Binance, the world’s largest crypto exchange by trading volume, converted $1 billion of US dollar stablecoin Binance USD (BUSD) to bitcoin, ether, and other cryptocurrencies. The conversion was the consequence of Binance competitor Coinbase officially closing BUSD trading on its platform due to “liquidity concerns.”
Binance’s sale not only increased buying pressure, but it could also have resulted in a “follow the leader” effect in which people exchanged their BUSD for bitcoin.
Hayes ditches stocks for crypto
Meanwhile, in his most recent market blog post, Arthur Hayes, former CEO of derivatives giant BitMEX, revealed his own pivot. In contrast to stocks, Hayes concluded that Bitcoin was a firm haven after a thorough examination of current Fed behavior and its potential consequences.
For me and my portfolio, I’m largely done trading stonks. What’s the point? I generally buy and hold and don’t trade around my positions that frequently. If I believe what I wrote, then I am signing myself up for underperformance […] If there is a short-term trading opportunity where I think I can earn some quick fiat buckets and then take my profit and buy more Bitcoin, I will do it. Otherwise, I am liquidating most of my stock portfolio and moving it into crypto.
Arthur Hayes
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