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Bitcoin hit a nine-month high on Friday as crypto traders moved money out of banks and grew wary of rapidly changing interest rate expectations.
The dollar price of the original and largest cryptocurrency rose more than 30% this week to more than $27,000, its highest level since the confidence crisis that engulfed the market began last summer. Ether, the second largest token, rose five times over the same period.
The buyers emerge after a week of severe turmoil in the global banking industry on both sides of the Atlantic, as investors worried about the valuation of small banks’ bond portfolios and business models.
The US government and big banks intervened to stabilize the system, while the Swiss central bank provided lender Credit Suisse with a $54 billion emergency backstop. The uncertainty has fueled speculation that the US Federal Reserve (Fed) and European Central Bank (ECB) may pause their aggressive interest rate hike plans in a bid to rein in lingering inflation.
Bitcoin’s price, once touted as an inflation hedge, has been sensitive to traders’ expectations for interest rates over the past 18 months, often correlated with traditional stock indexes such as the S&P 500 and Nasdaq Composite.
Traders say that when investors become concerned about the price of a cryptocurrency, they move their funds into bank deposits or stablecoins. If banks have concerns, they will quickly move to buying tokens.
Ilan Solot, Co-Head of Digital Assets, said: “In addition to lower real interest rates, concerns about the stability of the banking system are increasing as some investors see Bitcoin as a hedge against systemic risks. “This creates a favorable environment for a backlash.” London broker Marex.
The market recovery was also helped by reassurances from U.S. authorities that deposits at failed Silicon Valley banks would be protected.
The operator circle of USDC, the second-largest stablecoin in the cryptocurrency market, admits that $3.3 billion is locked up in SVB, triggering the stablecoin’s value to briefly drop to 88 cents. Ta.
Stablecoins act as a conduit between cryptocurrencies and sovereign money, and are thought to maintain a constant 1:1 value against the dollar.
Despite the short-term recovery in digital assets, turmoil in the banking sector casts doubt on the long-term footprint of the cryptocurrency industry in the United States.
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SVB was one of a triumvirate of crypto-friendly banks that recently came to an end, along with Silvergate and Signature. Their failures have raised concerns among industry supporters that the U.S. is debanking the crypto industry.
Republican Rep. Tom Emmer sent a letter to the Federal Deposit Insurance Corporation on Wednesday, arguing that regulators are intentionally trying to limit the banking industry’s exposure to the cryptocurrency market.
“Many already understand that the industry is moving away from the US, so in many ways the US crackdown on crypto is priced in by the market,” Solot said.
