On Friday, Bitcoin achieved its highest level in nine months, as cryptocurrency traders moved their investments away from banks and became more receptive to quickly changing interest rate forecasts.
The value of the digital currency has surged to its highest level since last June, with other digital tokens also experiencing price increases.
The price of the largest and original cryptocurrency, in terms of dollars, has increased by over 30% this week, reaching more than $27,000. This marks the highest point it has reached since the market was shaken by a crisis of confidence last summer.
After a tumultuous week for the global banking industry, buyers have begun to emerge on both sides of the Atlantic. Smaller banks’ bond portfolios and business models are causing concern among investors, prompting the US government and large banks to intervene in order to stabilise the system.
Meanwhile, the Swiss central bank has provided an emergency backstop for Credit Suisse worth $54bn. This uncertainty has led to speculation that the Federal Reserve and European Central Bank may pause their plans to raise interest rates in an effort to control persistent inflation.
Over the past 18 months, Bitcoin’s price – once hailed as a hedge against inflation – has frequently been linked to traditional stock indices such as the S&P 500 and the Nasdaq Composite, as well as sensitive to traders’ predictions regarding interest rates. Traders have noted that when investors are anxious about crypto prices, they move their funds into bank deposits and stablecoins. Conversely, when there are concerns about the stability of banks, they quickly shift towards purchasing tokens.
“Fears over the stability of the banking system, combined with falling real interest rates, create a favourable environment for Bitcoin to rebound, as some investors view it as a hedge against systemic risks,” stated Ilan Solot, co-head of digital assets at Marex, a London-based broker.
The recent resurgence in the market has received a boost from US authorities who have given assurances that deposits held at the failed Silicon Valley Bank would be safeguarded. This development follows Circle’s disclosure that it had $3.3 billion held at SVB, causing a temporary dip in the value of the second-largest stablecoin in the crypto market, USDC, which briefly dropped to 88 cents.
Stablecoins play a vital role in facilitating the exchange of crypto and fiat currencies and are expected to retain a one-to-one parity with the US dollar at all times. Nevertheless, the banking sector’s instability raises concerns about the long-term prospects of the cryptocurrency industry in the US, despite a brief recovery in digital assets.
Recently, SVB, along with Silvergate and Signature, was among the crypto-friendly banks that have gone under, leading to concerns among industry advocates that the US is unwelcoming to the crypto industry.
Republican congressman Tom Emmer has written a letter to the Federal Deposit Insurance Corporation, alleging that the regulator is intentionally limiting the banking industry’s exposure to the crypto market. “Many people are aware that the industry is shifting away from the United States, so in many respects, America’s crypto crackdown has been anticipated by the market,” according to Solot.
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