Did Bitcoin benefit from the banking crisis? Not in the way his fans hoped.
Shortly after Silicon Valley Bank’s bankruptcy this month, Bitcoin’s price soared above $25,000, hitting a low the digital currency hadn’t seen since June. This week, Bitcoin hit close to $30,000, up 70% for the year.
Bitcoin proponents have taken advantage of the price rally to claim that the banking crisis is prompting investors to convert traditional currencies into digital coins. A cryptography manager greeted bank failures as “the end of the USD and the dawn of hyperbitcoinization”. A company that markets Bitcoin to investors has started putting references to the bank appear in its promotional materials.
But despite the fanfare, there is little evidence that the recent banking meltdown has generated widespread support for Bitcoin as a financial alternative.
Instead, Bitcoin’s price surge was driven by a range of financial trends that have little to do with the philosophical underpinnings of the technology, analysts said. Reasons for the surge include growing optimism that the Federal Reserve may suspend interest rate hikes, as well as growing concerns over the safety of so-called stablecoins, a type of cryptocurrency intended to maintain a price of $1.
“Is there widespread interest and growth coming into the space? Is that a lot of new money?” asked Ed Moya, crypto analyst at trading firm OANDA. it happens.”
Bitcoin’s recent rise is also the result of low liquidity, a measure of how easily it is possible to buy and sell a digital asset without affecting its price, according to analysis by crypto research firm Kaiko. . Since the crypto market collapsed last year, fewer major financial firms have been buying and selling Bitcoin, making the currency harder to trade. Bitcoin price has always been volatile, but in today’s market, it can rise or fall significantly after just a few trades. Bitcoin liquidity hit a 10-month low last week, according to Kaiko.
“It doesn’t mean that because there’s a big price move one way, it’s a whole new wave of institutional money or anything like that,” said research analyst Conor Ryder. for Kaiko. “It’s more of a cash flow issue.”
Bitcoin was created after the 2008 financial crisis, which sowed widespread distrust in the banking system. Early proponents touted the new technology as a safer, long-term alternative to traditional banks and currencies.
This vision never materialized. For the past 15 years, traders have largely treated Bitcoin as a speculative investment – and, in some cases, a tool for money laundering and other crimes.
But the Silicon Valley Bank implosion – and the broader crisis it sparked – seemed to lend credence to Bitcoin’s original thesis.
“Bitcoin is the clear winner of the US banking crisis,” a column from crypto publication CoinDesk said this month.
The price of Bitcoin has risen around 40% since the fall of Silicon Valley Bank in early March, rising from $20,000 to $28,000. But that’s still a far cry from Bitcoin’s all-time high price of nearly $70,000 in November 2021.
And the surge has been fueled in part by issues in other corners of the crypto industry. The banking crisis briefly put billions of dollars held by Circle, one of the largest stablecoin issuers, at risk, causing investors to panic. Some crypto traders who kept their digital savings as stablecoins are now looking for other options.
“You see flows coming out of stablecoins into Bitcoin,” said Mr. Moya, the crypto analyst.
The banking also fueled the enthusiasm of crypto investors who hoped the Federal Reserve would slow its interest rate hikes to calm the panic. Over the past year, the increases have crippled the crypto market by making it more expensive to invest money in speculative assets.
In a widely shared blog post last week, Molly White, a crypto critic, noted that the price of Bitcoin began to rise around the time the government announced it would back Silicon Valley Bank — an intervention that some analysts interpreted it as a signal that the Fed might go further. measures to calm the situation.
“If the spike was fear-driven, I would have expected it to have started during the SVB bank rush,” she wrote.
Last week, the Fed announced that it would go ahead with another rate hike. The price of Bitcoin has remained relatively stable since then, standing around $28,000.
Still, Bitcoin proponents said they sensed an opportunity to recruit new adherents.
Swan Bitcoin, a financial services company that helps people invest in Bitcoin, has seen a surge of new customers looking to buy the digital coin as an alternative to keeping cash in the bank, said Cory Klippsten, chief executive of the society.
“They believe it will be the world’s reserve currency,” Klippsten said. “This is the best time for bitcoin marketing and bitcoin adoption in its history.”
Cody Candee, the chief executive of start-up Bounce, reached out to Swan this month, hoping to convert some of his company’s funds into bitcoin.
“Having a few percent in bitcoin feels like a really good insurance policy on the US dollar, on the banking system, on the Fed, on the whole infrastructure,” he said.
But Mr. Candee was reluctant to fully commit. Bounce, which operates a network of luggage storage and parcel collection points, raised $12 million in a funding round last year. Mr. Candee said he plans to spend just $200,000 on Bitcoin.
“If it went down significantly,” he said, “it wouldn’t have an impact on the business.”