Cryptocurrencies stepped out this week as bank shares fell and the stock market was rattled by the global liquidity crisis.
Bitcoin gained 34% in the week ending March 17, making it the cryptocurrency's biggest week since January 2021 — the start of the institution-led bull run that year. Coin Metrics evaluates a week in cryptocurrency, which trades 24 hours a day, from one Friday's stock market close to the next.
Bitcoin is currently up 62% year to date.
Ether finished the week up 23%. It traded at around $1,780 at one time, a figure not seen since its rise ahead of the Ethereum merger in September. Ether has increased over 45% year to date.
"Bitcoin has impressed as an unanticipated financial crisis has generated a realization that Fed policy is extremely restrictive and that the economy is on the verge of a recession," said Ed Moya, senior market analyst at Oanda. "The Fed now needs to assess if they have adequate information on the rising dangers that are spreading across numerous banks. Inflation is falling, but some policymakers may want to give one more rate rise before halting, which may spark a de-risking period on Wall Street."
According to Coin Metrics, the price of bitcoin has risen twice beyond the critical $25,200 threshold to more than $26,000. It hasn't been that low since June, just days before its pre-FTX low of under $18,000.
Others speculated that Bitcoin's outperformance during a crisis in the traditional banking system was due to a potential narrative change. Despite bitcoin being intended to be a digital currency and an alternative financial system, it spent most of the last year trading as a speculative asset. It even plummeted alongside risk markets and bank equities last week due to the uncertainties surrounding Silvergate Bank.
Nevertheless, with the closures of Silicon Valley Bank and Signature Bank this week, it appeared that investors were trading it on its key value proposition, the potential to "create your bank."
"When the financial system displays fractures, it creates a use case for decentralization," said Callie Cox, an eToro investment analyst in the United States. "Of course, there are advantages and disadvantages to both decentralized and centralized models, but for the time being, investors appear to be focused on one specific viewpoint."
But, even though the original bitcoin story began to resonate for some individuals this week, macroeconomic factors remain the most important drivers of price.
"Bitcoin is not insulated from the existing financial system in practice. "Crypto values climbed rapidly in 2020/2021 as a result of central bank monetary expansion, prompting money to shift from the traditional fiat banking sector to the crypto world," Sheena Shah, an analyst at Morgan Stanley, said in a note this week. "We conclude that the Bitcoin network can function without banks, but that bitcoin's price, and hence its purchasing power, has been and continues to be impacted by fiat central bank policy, and that banks are required to enable crypto flows."
Many believe the bitcoin price bottomed out in late 2022 with the demise of FTX, but there is still a lot of uncertainty in the market, making it impossible for traders to predict the start of a fresh bull run.
According to Yuya Hasegawa, an analyst at Japanese crypto business Bitbank, this week's close of over $26,000 might be that indicator. Katie Stockton of Fairlead Strategies, on the other hand, is waiting for two consecutive closes over $25,200 to create a "bullish long-term development."
In the next week, investors will continue to keep an eye on the banking crisis and the regulatory landscape. The Federal Reserve will start its two-day policy meeting on Tuesday.
"Bitcoin's rise might continue if the Fed decides to halt its tightening cycle and observe what happens next with financial upheaval," Moya added. "Traders are pricing in rate reduction this summer already, so we will see what happens if the Fed opts to remain focused on inflation and deliver another quarter-point raise. After a little pause, Bitcoin can surge towards the $30,000 mark."
Considering the market's pulse and recent Fed statements on inflation, Moya believes one more rise should be the default scenario, which may return bitcoin to the center of this month's trading range.
As a leading independent research provider, TradeAlgo keeps you connected from anywhere.