Bitcoin price is up 4% in the last 24 hours to over $28,300, having traded above $28,500 in points to hit all-time highs since the crypto crash accelerated last June. After stalling and falling below $20,000 in early March, the largest digital asset has resumed its recovery to start 2023. January started around $16,500 with a global banking run. kicking bitcoin at full speed.
โThe recent momentum still has some upside potential,โ said Alex Kuptsikevich, an analyst at broker FxPro. โThe $30,000 area was significant support for a year and a half until the middle of last year and now has a high probability of acting as resistance. As we approach the $30,000 level, we need to be ready for the bulls to start taking massive gains.โ
Investors have been rocked by a global panic over banks in recent weeks, from the failure of Silicon Valley Bank on March 10 to the emergency acquisition of
swiss credit
(ticker: CS) by opponent
UBS
(UBS) on Sunday. Bitcoin and digital assets have recovered despite turmoil in the broader stock marketsโwhat cryptos have they been with correlated for more than a year amid the pain of rising interest rates, as
Dow Jones Industrial Average
and
S&P 500
they have slipped lower and lower.
Why is Bitcoin recovering?
โBank contagion is uniquely positive for cryptocurrency in multiple ways,โ said Hal Press, founder of cryptocurrency hedge fund North Rock Digital.
He noted how the situation validates the original use case for cryptocurrencies as, first, a global financial alternative, and second, a hedge against the debasement of global currencies like the dollar. He also raises the possibility of a return to monetary policy that will benefit Bitcoin and may distract regulators who would otherwise have seemed bent on nullifying digital assets. Add market technical factors to the mix and you have five reasons why Bitcoin is rallying.
But not all of these reasons are the same.
โThere are several theoConcerns are floating around the strong performance of cryptocurrencies over the last week and frankly most of them are more wishful thinking than logic,โ said Craig Erlam, analyst at broker Oanda.
Crypto-native crowds are quick to point to the unique characteristics of digital assets to explain the outperformance of Bitcoin and its peers. Bitcoin was founded in the midst of the 2008-2009 financial crisis as a decentralized alternative to the traditional banking system, and its scheduled monetary policy was expected to be a hedge against inflation.
โThis is a pivotal moment for Bitcoin,โ said Alex Thorn, head of research at digital asset group Galaxy. "As a fractional-reserve banking system teeters on the brink, Bitcoin's resilience, predictability, and relative security stand out."
While that may be an exaggeration, there is no question that narratives are key for traders and it would be a mistake to dismiss them entirely. That being said, it is more likely that market technicals and changing expectations about the future of monetary policy are driving Bitcoin price action.
Liquidity in digital asset markets has suffered since the FTX crypto exchange collapse last November, and the recent collapses of cryptocurrency-focused banks
Silvergate Capital
and Signature Bank has exacerbated the problem. Silvergate's and Signature's respective interbank transfer networks were widely used by institutional crypto market participantsfacilitating the movement of funds between investors and exchanges.
The lack of liquidity means that price movements can amplify and spreadespecially if investors using borrowed money to trade the more liquid Bitcoin futures market are wiped out en masse, causing swings in the opposite direction of their positions.
More than a billion dollars in bearish bets against Bitcoin in the futures market have been removed in the last 10 days. according to data provider Coinglass, as prices have risen from $20,000 to over $28,000. These so-called selloffs will have added bullish pressure to an already bullish market.
There is also a more fundamental explanation for the crypto rally. Bank tensions have result of bond holding losses, an unintended consequence of the Federal Reserve's drastic interest rate hikes over the past year to combat decades-high inflation. Higher rates have also hit cryptocurrencies hard as demand for risk-sensitive assets is reduced when rates rise.
merchants now expect the Fed to be more accommodating in monetary policy as a result of the bank run, which would be a tailwind for Bitcoin. The outperformance of the tech-heavy Nasdaq last week is further evidence of this, as tech stocks are just as sensitive to risk.
Cryptocurrencies have proven to be among the leading indicators of risk sentiment, so Bitcoin's rise may just be the earliest expression that traders see an eventual easing of financial conditions that benefits risk assets. Understanding this trend could be key to gauging how broader stock sentiment, hit by banking problems, could change.
โIt is unusual for such a broadly negative event for risk to be so positive for a specific asset class (stocks down, crypto up) and that is why it is difficult for people to understand the current situation,โ said Press of Roca. of the Digital North.
Beyond bitcoin,
Ether
โ the second-largest cryptocurrency โ was up less than 1% at $1,790 after a buoyant weekend in which it topped $1,800 from below $1,700 on Friday. Smaller cryptocurrencies or altcoins exhibited similar price action, with
Cardano
1% higher but
Polygon
3% lower as it reduced profits. Memecoins were also off their highs, with
dogecoin
less than 1% and
Shiba Inu
shedding 1.5%.
Write Jack Denton at jack.denton@barrons.com