Cryptoverse: Bitcoin passes the bank stress test

Cryptoverse: Bitcoin passes the bank stress test

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March 21 (Reuters) – As crisis looms over the traditional world of stocks and bonds, bitcoin suddenly looks like a safe haven.

The infamously volatile cryptocurrency looks positively healthy and plentiful, just as a banking collapse sends markets into the arms of a recession.

Bitcoin is up 21% this month, while a choppy S&P 500 has lost 1.4% and gold has gained 8%.

“If I was going to describe an environment where there were successive bank runs because central banks are trying to fight inflation with rapid rate hikes, that’s pretty close to a sound thesis to own bitcoin like you’ve never heard of before.” said Stéphane Ouellette, CEO of the digital asset investment platform FRNT Financial (FRNT.V).

The cryptocurrency has, for now, severed its ties to stocks and bonds and joined a rally in gold, fulfilling at least part of creator Satoshi Nakamoto’s dream: that Bitcoin could serve as a haven for suffering investors.

Bitcoin 30-day correlation with the S&P 500 (.SPX) it has slid to negative 0.12 over the last week, where a measure of 1 indicates that the two assets are moving at the same time.

A liquidation at the banks wiped out hundreds of billions of dollars in market value and forced US regulators to release emergency measures. In recent weeks, Silicon Valley Bank and crypto lender Silvergate have gone under, while Credit Suisse has. reeling on point.

Reuters charts

‘RETURN TO BASIC ETHOS’

However, let’s not get carried away. This is bitcoin.

“The bearish argument would be that this momentum is temporary and ultimately this rally will not hold,” Ouellette said.

It remains to be seen if the bitcoin optimism will endure as attention shifts to the Federal Reserve’s policy meeting this week, where the US central bank must walk a fine line as it battles inflation and bank tensions.

Furthermore, the appeal of cryptocurrency has not been all about security.

The rapid rise in prices has forced some short sellers to reduce their bets and buy back coins. Data from Coinglass shows that traders liquidated $300 million worth of cryptocurrency positions on Monday, with the majority of that total ($178.5 million) in short positions.

However, bitcoin is making a comeback.

It now controls nearly 43% of the total cryptocurrency market, its highest share since last June, according to CoinMarketCap data, while total cryptocurrency market capitalization has risen 23% to $1.1bn since March 10.

“We are seeing a return to the core ethos of bitcoin, that of a financial asset independent of the opacity and meddling of the centralized financial system,” said Henry Elder, head of decentralized finance (DeFi) at digital asset investment manager Wave Digital Assets. .

The crisis from major banks has also fueled some interest in DeFi, with the total value of tokens tied to such platforms rising to $49 billion from $43 billion over the past week, according to DappRadar.

BITCOIN IN A BANKING CRISIS

However, not all areas of the digital world have been immune to the banking fallout. He does not. 2 Circle USD or USDC stablecoin lost its 1:1 peg to the dollar after revealing that its reserves were parked at the shuttered Silicon Valley Bank.

As concerns about the USDC’s ability to maintain its peg spread, its market capitalization slid to $36.8 billion last Friday from $43.8 billion the previous week, even as the top stablecoin Tether made around $4 billion.

Market participants said some USDC withdrawals were likely also reinvested in bitcoin, helping fuel the rally.

“It is too early to say that Bitcoin has proven the narrative that it is an alternative in a banking crisis,” warned Ed Hindi, chief investment officer at Tyr Capital in Geneva.

But he added: “The rally we are currently witnessing in bitcoin will be remembered as the moment when its main holding as a non-sovereign decentralized asset was stress tested.”

Reporting by Medha Singh and Lisa Mattackal in Bangalore; Edited by Vidya Ranganathan and Pravin Char

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and non-bias.

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