The Bitcoin Price Might Surprise You As It Rises Amid The Bank Crisis

Having experienced arrests, speculation, scams, bankruptcies, and billions of dollars worth of value lost over the past year, cryptocurrency market experts could hardly wait for boring times to come. Silicon Valley Bank went under, throwing the financial markets into a tailspin, and the cryptocurrency outlook and Bitcoin price were thrown out of whack. Will this be the next blow to the cryptocurrency market and the Bitcoin price?

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It is worth noting, however, that the panic of 2023 has proven to be a net positive for cryptocurrencies, particularly bitcoin and ethereum.

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A recent surge in the price of bitcoin contributed to the price move from around $28,000 to around $29,500, which is its highest level since June, when the FTX exchange, run by Sam Bankman-Fried, started to collapse. Ethereum stocks are trading above $1,700 and near September highs.

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While the crypto outlook in 2023 is also nuanced, some analysts see opportunity for real growth in prices and usage of digital currencies. However, the cryptocurrency outlook is a nuanced view, and the majority of the optimism comes from overseas.

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There has been a battle in the United States to enact meaningful regulations and oversight, but it remains a bumpy ride. Earlier this month, regulators charged Binance, which is the world's largest cryptocurrency exchange, with securities violations. A few days earlier, they had warned Coinbase (COIN), one of Binance's major rivals, that enforcement actions could be taken.

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As a result of ebbing bank fears and the recent Binance news, bitcoin and other crypto currencies have held recent gains.

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Matthew Sigel, head of digital asset research at VanEck, a global ETF and mutual fund manager, says 2023 will be the first year after the vicious, frigid crypto winter of 2022 that hopefully will be followed by something much hotter in 2024."

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In light of the financial crisis, we should take a closer look at the cryptocurrency outlook

As a result of the banking sector's troubles, crypto players are feeling the brunt of it. As a result of industry and regulatory developments, Silvergate Capital announced on March 8 that it was closing and liquidating its Silvergate Bank and that its Silvergate Exchange Network would be discontinued. Five days earlier, Silvergate had announced it would discontinue its Silvergate Exchange Network. Crypto exchanges were able to transfer dollars from their bank accounts to cryptocurrency exchanges using the platform since it was launched in 2018.

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As a result of the failure of SVB Financial, the parent company of Silicon Valley Bank, several other banks were experiencing a liquidity crisis and regulators scrambled to prevent the contagion from spreading. Regulations soon took the company under their control. According to data collected by Signature Bank, about 30% of its deposits come from cryptocurrency customers.

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There was a wide spread banking crisis, which was not caused by crypto-contingent banks - even though they were among the first dominoes to fall.

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He asserts that to blame crypto for the current bank problems is akin to blaming the British bank Northern Rock for the disastrous collapse of Lehman Brothers in 2007. According to Mark Connors, head of research at digital asset management firm 3iQ, it makes no sense to blame crypto.

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According to 3iQ data, the Fed and Treasury have combined to increase the U.S. M2 money supply by 38.6% between December 2019 and December 2022, which has been unevenly growing bank balance sheets in the same way. However, Connors said that the banks' reactions varied according to the investment they chose, with some investing in Treasuries and other government-backed securities. However, the market value of these bonds fell as interest rates went up last year. There were a lot of firms that maintained their short-to-long-term debt ratios during the financial crisis, such as Bank of America (BAC) and JPMorgan (JPM), but there were also others, such as First Republic (FRC), who managed it differently. Their biggest difference, however, was the decision they made to increase their short-term debt in addition to reducing their long-term debt, which made them the most vulnerable during the financial crisis.

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There was no question that this was a total own goal ", Connors said. "Every crisis begins with the collapse of the weakest lungs ... and the ones that had the weakest and least flexible deposit bases are always the ones that fall apart first."

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A spike in the price of bitcoin is followed by an outflow of stablecoins

In March of this year, the price of cryptocurrencies bolted higher as fears of the bank crisis weighed heavily on financial stocks. It is estimated that Circle, the issuer of USDC, held $3.3 billion in Silicon Valley Bank before it collapsed, as retail and institutional investors refunded fiat-backed stablecoins such as USDC for blue chip bitcoin and ethereum.

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A Bitcoin price surge of 18.9% took place in March, reaching its highest level since June 11 by reaching $28,889 on March 22. Ethereum's price surged by 6.9% to $1,858 on March 23 and now trades at its highest level since mid-August.

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Uniswap, a decentralized exchange, recorded its highest-ever daily trading volume on the weekend of March 11, with more than $21 billion traded each, according to Sigel, the deputy director of the decentralized exchange.

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As a result, stablecoins continue to entail banking system risks, thus causing people to switch over to bitcoin from Circle and other stablecoins. "That was the perfect flight-to-quality example," Connors said.

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According to Sigel, the stablecoin outflows following Silicon Valley Bank's failure were unprecedented, and they were accompanied by "all kinds of actors." As banks have tightened their access to U.S. exchanges, it appears that U.S. exchanges are experiencing some worse liquidity profiles, when compared to offshore (firms), Sigel said.

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According to Todd Groth, head of index research at CoinDesk Indices, the price of bitcoin in 2022 tended to move in inverse correlation with Treasury yields, but that correlation started breaking down starting in October when Treasury yield expectations peaked and the U.S. dollar index peaked, IBD reported.

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However, Groth says that bitcoin prices remain a moderately negative relationship with the yield curve slope (for five-year to 30-year spreads), and this correlates with the steepening of the yield curve thanks to the region's bank crisis, which he estimates contributed 9% to the 25% return bitcoin experienced during that time.