Credit Suisse Crisis Has Bitcoin Investors Feeling Bullish – Decrypt

As the banking sector continues to grow, this time Credit Suisse, cryptocurrency enthusiasts are already taking victorious turns on Twitter.

"The macro backdrop for Bitcoin has never been more perfect," wrote co-founder of Mechanism Capital Andrew Kang.

Others, alluding to the inscription enshrined in the first block of the network, repeated the sentiment, saying "Bitcoin was made for this."

However, looking beyond the talk paints a much more complex picture, revealing just how entwined Bitcoin and cryptocurrencies are with the Federal Reserve's monetary regime.

It all comes down to rate hikes and how risky investors view digital assets.

As rates rise to tame inflation, making it more expensive to borrow money, investors are ditching riskier assets like stocks and cryptocurrencies for safer bets like US Treasury bills.

But as rates rise, they may also put pressure on banks.

Silicon Valley Bank, for example, revealed that it had moved to variable-term bonds. However, as its tech and start-up focused client withdrew funds to expand its runway, SVB was forced to sell these bonds before they matured, resulting in a sizeable loss and ultimately closure. from the bank last week.

Many have criticized SVB executives for the collapse, including President Biden. Others, however, have said that the pace at which the Federal Reserve is raising rates is also to blame.

Therefore, putting the rallies on pause would create fertile ground for high-risk assets like Bitcoin to thrive. And today's ongoing banking chaos suggests that such a pause could very well be in the cards.

Fed Hikes Paused?

The likelihood of the Federal Reserve pausing interest rate hikes rose on Wednesday as investor confidence in European bank stocks faltered.

Fed funds futures indicated a 59% chance the Fed would pause its most aggressive tightening cycle in 40 years, nearly doubling the previous day's 31% chance, according to the CME FedWatch Tool.

The central bank looked likely to continue raising interest rates yesterday as US bank stocks showed signs of stabilizing.

But that changed when Credit Suisse shares plunged more than 25% on news that the Saudi National Bank, the institution's biggest lender, would not offer Credit Suisse any more financial help, it reported. Reuters.

Shares of other European banks also fell 8%, including Commerzbank, BNP Paribas and Societe Generale. In the US, major stock indices such as the S&P 500 and Nasdaq Composite were down 1.5% and 1%, respectively, less than an hour after markets opened amid Credit Suisse woes. .

Crypto's windy road out of winter

Investors around the world may take a risk-off stance as uncertainty in financial markets continues to rear its head, Wave Digital Assets managing director Nauman Sheikh said. decipherwhich causes the price of risky assets like cryptocurrencies and stocks to fall in the short term.

“This is another example of a bank run that could definitely have a positive effect on cryptocurrencies in the medium term, but in the short term, if everyone is in a risk-off mode, I think. [crypto] it should continue down as well,” he said.

Although the price of Bitcoin is up 11.3% to around $24,800 at press time, the largest coin by market capitalization had fallen 4.5% over the past day, according to CoinGecko. Ethereum was down 4.6% at around $1660, showing weekly gains of 6.3%.

Despite recent gains, Bitcoin is still showing significant correlation with stock indices like the Nasdaq and S&P 500, as Fed tightening has been a driving force behind the value of both stocks and cryptocurrencies.

The recent failures of Signature and Silvergate have also raised concerns about the ability of native cryptocurrency firms to establish banking partnerships, amid a regulatory crackdown on the digital asset industry: The New York Attorney General's office claimed that Ethereum is a value in your lawsuit against the KuCoin cryptocurrency exchange announced earlier this month.

Regardless, cryptocurrencies as an asset class have shown signs of resilience amid a tumultuous time in financial markets, Sheikh said.

“Crypto banks, they are less and less now, the regulation is clearly anti-crypto, but nevertheless, crypto remains strong,” Sheikh said. "I think it's been remarkable how it's been done."

Some analysts, including CoinShares' James Butterfill, have postulate that the recent rise in cryptocurrency prices is representative of growing investor distrust of the banking system as cracks form in the financial system.

On top of that, the notion that the Fed could pause rates or even cut them in response to stress in the banking sectors is good for risky assets, said James Knightley, chief international economist at ING Bank.

Others, such as Kaiko's head of research Clara Medalie, have suggested that a potential change in the Fed's attitudes towards interest rate hikes does not paint the complete picture, citing Binance. advertisement on Monday that it would exchange $1 billion of its BUSD stablecoin for Bitcoin, Ethereum and the exchange's native token, BNB.

As far as the Fed is concerned, whether or not the central bank can balance financial stability with its fight against rising prices is critical to the future of cryptocurrencies.

The Fed's next move will come after its policy meeting scheduled for next week.