Bitcoin rises above US$26,000, as ‘store of value’ narrative strengthens amid bank failures

Bit­coin, the world’s largest cryp­tocur­ren­cy by mar­ket cap­i­tal­iza­tion, rose 36.06% in the week from March 10 to March 17, to trade at US$26,795 at 7:00 p.m. on Fri­day in Hong Kong. Ether rose 26.67% in the same peri­od to US$1,750.

How­ev­er, equi­ty mar­kets had a tur­bu­lent (under­state­ment) week due to fears that cracks were appear­ing in the U.S. bank­ing sys­tem. 

It start­ed the week pri­or when Sil­ver­gate Bank went into vol­un­tary liq­ui­da­tion after a bank run and its shares plunged. Reg­u­la­tors then quick­ly shut down Sil­i­con Val­ley Bank (SVB) and Sig­na­ture Bank, two major lenders to the tech­nol­o­gy and cryp­to indus­tries, to avoid pan­ic and the risk of a sys­temic bank failure.

It was seri­ous enough that U.S. Trea­sury Sec­re­tary Janet Yellen con­tact­ed the White House on the week­end of March 11 to get approval from Pres­i­dent Joe Biden to ini­ti­ate the takeovers.  The Trea­sury then put out a joint state­ment with the Fed­er­al Reserve and Fed­er­al Deposit Insur­ance Cor­po­ra­tion, assur­ing a back­stop for U.S. banks. 

Biden repeat­ed the same mes­sage dur­ing the week as traders drove down the shares of oth­er U.S. region­al banks. The focus shift­ed to Europe when glob­al invest­ment bank Cred­it Suisse start­ed to wob­ble, prompt­ing a US$54 bil­lion life­line from the Swiss Nation­al Bank. On the U.S. side, 11 finan­cial insti­tu­tions had to step up to inject US$30 bil­lion into First Repub­lic Bank after its share price tanked.

Despite woes across banks, Bit­coin remained resilient and only briefly fell to US$19,654 on March 10, before reclaim­ing the US$20,000 lev­el the next day and moved high­er through the week.

“While the U.S. bank­ing sys­tem was seiz­ing up in response to bank runs threat­en­ing region­al banks, Bit­coin, Ethereum, and oth­er cryp­to net­works didn’t skip a beat,” tweet­ed Cathie Wood, the founder and chief exec­u­tive offi­cer of invest­ment man­age­ment giant Ark Invest.

Amid recent reg­u­la­to­ry crack­downs on cryp­to plat­forms, Wood seem­ing­ly could not resist dri­ving home the point: “Instead of block­ing decen­tral­ized, trans­par­ent, auditable and well-func­tion­ing finan­cial plat­forms with no cen­tral points of fail­ure, reg­u­la­tors should have been focused on the cen­tral­ized and opaque points of fail­ure loom­ing in the tra­di­tion­al bank­ing system.”

James Wo, the founder and chief exec­u­tive offi­cer of cryp­to invest­ment firm DFG, shares Wood’s sentiment.

“The market’s con­fi­dence in tra­di­tion­al finance was dent­ed, lead­ing to a shift of funds to the cryp­to mar­ket,” wrote Wo, in a LinkedIn response. Bit­coin “has shown its supe­ri­or risk and infla­tion resis­tance as an alter­na­tive asset, and will be fur­ther rec­og­nized by the main­stream,” he said.

Bit­coin then rose above the US$26,000 mark on Tues­day after the release of the U.S. Con­sumer Price Index (CPI), which indi­cat­ed a drop in the annu­al infla­tion rate to 6% in February.

How­ev­er, Jamie Dou­glas Coutts, senior mar­ket struc­ture ana­lyst at Bloomberg Intel­li­gence, said Bitcoin’s ral­ly was real­ly dri­ven by the earth­quake in U.S. bank­ing, not the CPI reading.

“Bit­coin has been strong­ly bid since last Fri­day when it became clear the U.S. bank­ing sys­tem was in trou­ble. The real sto­ry is the 25% ral­ly from then. The spike to US$26,000 on the CPI print is noise, because the num­ber came in line with expec­ta­tions and it quick­ly fell back below US$25,000 – a lev­el which I believe is crit­i­cal­ly impor­tant from a tech­ni­cal per­spec­tive,” wrote Coutts to Forkast.

Sla­va Dem­chuk, the co-founder of AML­Bot, a devel­op­er of cryp­to anti-mon­ey laun­der­ing soft­ware, attrib­uted Bitcoin’s ral­ly to hedg­ing by investors.

“[Bitcoin’s ral­ly] is not nec­es­sar­i­ly due to a wide­spread recog­ni­tion of the non-cus­to­di­al poten­tial of dig­i­tal assets like Bit­coin or Ethereum, but as a means to safe­guard against tra­di­tion­al finan­cial sys­tems,” wrote Demchuk.

Bon­nie Che­ung, head of strat­e­gy at Send­ing Labs, a soft­ware firm build­ing Web3 com­mu­ni­ca­tion pro­to­cols, said that the glob­al gov­ern­ment inter­ven­tions will help Bit­coin reach new highs.

“The rapid move by the Swiss gov­ern­ment to sup­port Cred­it Suisse has cer­tain­ly giv­en the mar­ket an olive branch to hold onto for the com­ing weeks. This, togeth­er with the action by the US gov­ern­ment, has now set a prece­dent. The expec­ta­tion is that gov­ern­ments will not hes­i­tate to swoop in should any major bank­ing cri­sis start to unfold in the next few weeks. This will fur­ther ignite the bull­ish sen­ti­ment and build the nar­ra­tive to push Bit­coin to test new highs,” wrote Cheung.

The glob­al cryp­to mar­ket cap­i­tal­iza­tion stood at US$1.14 tril­lion on Fri­day at 7:00 p.m. in Hong Kong, up 23% from US$923 bil­lion a week ago, accord­ing to Coin­Mar­ket­Cap data. Bitcoin’s US$520 bil­lion mar­ket cap account­ed for 45.2% of the mar­ket, while Ether’s US$215 bil­lion account­ed for 18.7%.

See relat­ed arti­cle: Banks are bring­ing sys­temic risks to cryp­to, says Circle’s Disparte

Biggest gainers: CFX, STX rise over 100%

CFX, the util­i­ty token of Con­flux Net­work, China’s only pub­lic blockchain, was this week’s biggest gain­er among the top 100 coins by mar­ket cap­i­tal­iza­tion list­ed on Coin­Mar­ket­Cap. CFX rose 105.99% dur­ing the week to trade at US$0.317.

The token start­ed gain­ing momen­tum after Con­flux announced that KuCoin Ven­tures invest­ed US$10 mil­lion in the pro­to­col. Con­flux also intro­duced CNHC, a CNH sta­ble­coin for cross-bor­der payments.

STX, the native token of Stacks, Bitcoin’s smart con­tract lay­er, was the week’s sec­ond-biggest gain­er, up 100.13% to US$1.09. The token has seen increased inter­est after its upcom­ing hard fork, Stacks 2.1., was announced for March 20. The upgrade aims to cre­ate a stronger inter­con­nec­tion between Stacks and Bit­coin by intro­duc­ing decen­tral­ized min­ing pools, improved bridges and enable com­pat­i­bil­i­ty between Stacks-native assets – like Ordi­nals – and Bit­coin wallets.

Next week: Bitcoin to US$28,000?

“Right now, sys­temic risk is front and cen­ter in the minds of investors. It’s been over 10 years since the Euro­pean Sov­er­eign Debt cri­sis and the Glob­al Finan­cial Cri­sis. Whilst this bank­ing cri­sis seemed to have start­ed in the U.S. the sit­u­a­tion in Europe with Deutsche and Cred­it Suisse has been a slow-mov­ing train crash for years,” wrote Coutts.

“Short term is not my forte but if we fin­ish with a week­ly close above the $25,000 then I would have to adjust my mod­el regime to bull­ish as that would sig­nal we have com­plet­ed a bot­tom­ing process which start­ed in mid-2022 and a new bull cycle is under­way,” added Coutts.

DFG’s Wo said macro­eco­nom­ic trends in the U.S., upcom­ing inter­est rate hikes, and the glob­al bank­ing woes will remain the main deter­mi­nants of tra­di­tion­al and cryp­to mar­kets in the com­ing weeks.

Kadan Stadel­mann, chief tech­ni­cal offi­cer of blockchain infra­struc­ture devel­op­ment firm Komo­do, said the frag­ile eco­nom­ic land­scape in the U.S. is cur­rent­ly the main dri­ver of Bit­coin prices.

“The Fed­er­al Reserve embarked upon a many-tril­lion dol­lar quan­ti­ta­tive eas­ing pro­gram, cut the min­i­mum bank reserves from 10% to 0% on March 26, 2020, and led us into the cur­rent bout with infla­tion, which has led peo­ple to seek alter­na­tive ways to pre­serve wealth. Bit­coin has become a promi­nent option,“ wrote Stadelmann.

“Bit­coin won’t see any resis­tance until the US$30,000 lev­el for now. If a sys­tem­i­cal­ly impor­tant bank such as Cred­it Suisse col­laps­es, it could bring the mar­ket down to US$9,000–13,000,” he said. 

“In 2020, when mar­kets col­lapsed, Bit­coin was among the first com­modi­ties to rebound. Bit­coin is still well off its all-time highs and could quick­ly dou­ble to retake its old highs, espe­cial­ly if the Fed revers­es course and embarks upon anoth­er quan­ti­ta­tive eas­ing pro­gram,” said Stadelmann.

Mayank Shekhar, co-founder and chief tech­nol­o­gy offi­cer of play-to-earn game One World Nation, said Bit­coin is being increas­ing­ly per­ceived as a store of val­ue and he expects it to trade between US$24,000–27,000 next week in the run up to the Fed meet­ing on inter­est rates on March 21 and 22.

Aziz Ken­jaev, head of part­ner­ships at decen­tral­ized cryp­to exchange Gam­maX Exchange, expects the cryp­to mar­ket to cool before the Fed’s inter­est rate decision.

“As for Bit­coin, I am expect­ing a retest of US$22,350–22,250 dur­ing the week­end but the main focus remains on Wednesday’s inter­est rate deci­sion. The Fed is expect­ed to raise rates by 25 basis points, any num­ber above this pro­jec­tion will act as a strong bear­ish sen­ti­ment for the U.S. dol­lar, and a strong bull­ish sen­ti­ment for Bit­coin. In this regard, I’m expect­ing Bit­coin to reach US$28,100 next week.