Bitcoin is fast becoming the winner amidst the current banking crisis in the United States. The recent failure of Silicon Valley Bank (SVB) on March 10 triggered a surge in bitcoin price. Before the failure, bitcoin was trading at $19,600, and it was hovering above and below $20,000. But, at 12 p.m. ET, SVB went into FDIC receivership, which caused bitcoin to lose $200 and dropped below $20,000. However, bitcoin quickly bounced back, and it spent the weekend trading above $20,000. By Monday, March 13, at 9:30 a.m. ET, bitcoin was trading at $22,386, and 24 hours later, it was trading at $26,175. As of the time of writing, it is currently trading at around $26,700.
Bitcoin’s narrative plays a significant role in its price, as I have previously stated in several articles. The Federal Reserve Chair, Jerome Powell, confirmed this in his statement when he said that people’s inflation expectations affect inflation. So, what led to the aggressive 35% trough-to-peak change in bitcoin’s price? The answer is simple – a lot has happened.
One one hand, bank failures are increasing, and Bitcoin is benefiting. Although it is unclear who is at fault for the three bank failures, it is evident that these banks’ insolvency is not due to bitcoin. SVB failed due to an old-fashioned bank run, and Silvergate had to take an FHLB loan. Signature Bank’s shut down is reportedly due to a “crisis of confidence” in leadership. Moreover, the wider banking system is under threat, as Credit Suisse just received a 50 billion Swiss franc loan from the Swiss central bank, and 11 banks injected $30 billion into First Republic Bank in California to prevent it from failing.
However, what is not causing these banks to fail is their involvement in bitcoin, crypto, or companies in those industries. The fractional reserve banking system is under pressure due to rising interest rates, and it is revealing its cracks.
On the other hand, stablecoins were unstable, and this led to the loss of USDC’s dollar peg. Although USDC regained its peg during the week, the loss of the peg highlighted that USDC is not immune from counterparty risk. Bitcoin, on the other hand, is not subject to counterparty risk.
The largest crypto exchange by trading volume, Binance, converted $1 billion of U.S. dollar stablecoin Binance USD (BUSD) to bitcoin, ether, and other cryptocurrencies in the early hours of March 13, which added to the buying pressure. This conversion came after rival crypto exchange Coinbase officially shut down BUSD trading on its platform due to liquidity concerns. The move by Binance could have potentially led to a “follow the leader” effect in which people also exchanged their BUSD for bitcoin.
Furthermore, the U.S. Federal Reserve’s possible suspension of interest rate hikes could give the market a much-needed break, especially since the failure of these banks is closely tied to the increase in rates by almost 20 times over the last year.
In conclusion, the recent banking crisis in the United States has created an opportunity for bitcoin to soar in price. Bitcoin is increasingly becoming a clear winner, and investors are buying into it as an alternative to the traditional banking system. While bank failures continue, bitcoin’s price is expected to keep increasing.
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