Bitcoin hits nine-month high as traders shift away from banks

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Bit­coin hit its high­est lev­el in nine months on Fri­day as cryp­to traders shift­ed funds away from banks and warmed to rapid­ly shift­ing inter­est rate expectations.

The dol­lar-denom­i­nat­ed price of the orig­i­nal and biggest cryp­to coin has surged more than 30 per cent this week to more than $27,000, its high­est point since the onset of the cri­sis of con­fi­dence that engulfed the mar­ket last sum­mer. The sec­ond-largest token, ether, has risen a fifth in the same period.

Buy­ers have emerged after a week of acute tur­bu­lence for the world’s bank­ing indus­try on both sides of the Atlantic as investors fret over the val­u­a­tions of small­er banks’ bond port­fo­lios and busi­ness models. 

The US gov­ern­ment and large banks stepped in to steady the sys­tem while the Swiss cen­tral bank pro­vid­ed a $54bn emer­gency back­stop for lender Cred­it Suisse. The uncer­tain­ty has prompt­ed spec­u­la­tion that the Fed­er­al Reserve and Euro­pean Cen­tral Bank will pause their plans to raise inter­est rates aggres­sive­ly to curb lin­ger­ing inflation. 

For the past 18 months the price of bit­coin, once tout­ed as a hedge against infla­tion, has often been cor­re­lat­ed with tra­di­tion­al stock indices such as the S&P 500 and the Nas­daq Com­pos­ite, and sen­si­tive to traders’ expec­ta­tions on inter­est rates.

Traders point out that when investors have fears over cryp­to prices, they move funds into bank deposits and sta­ble­coins. When there are con­cerns over banks, they rapid­ly move to pur­chas­ing tokens.

“Fears over the sta­bil­i­ty of the bank­ing sys­tem, along with declin­ing real inter­est rates, cre­ates a good envi­ron­ment for bit­coin to rebound because it is seen by some investors as a hedge against sys­temic risks,” said Ilan Solot, co-head of dig­i­tal assets at Lon­don bro­ker Marex.

Line chart of Price of bitcoin ($000s) showing Bitcoin has surged amid banking instability

The mar­ket recov­ery has also been bol­stered after reas­sur­ances from US author­i­ties that deposits at the failed Sil­i­con Val­ley Bank would be protected.

Cir­cle, oper­a­tor of the cryp­to market’s sec­ond largest sta­ble­coin USDC, admit­ted it had $3.3bn trapped at SVB, trig­ger­ing a tem­po­rary decline in the val­ue of the sta­ble­coin to 88 cents. 

Sta­ble­coins act as a con­duit between cryp­to and sov­er­eign mon­ey and are sup­posed to main­tain their val­ue one-for-one against the dol­lar at all times.

Despite a short-term recov­ery for dig­i­tal assets, tur­bu­lence in the bank­ing sec­tor casts doubt over the cryp­to industry’s long-term foot­print in the US.

Togeth­er with Sil­ver­gate and Sig­na­ture, SVB was one of a tri­par­tite of cryp­to-friend­ly banks that met their demise in recent days. Their fail­ures have sparked fears among indus­try sup­port­ers that the US is de-bank­ing the cryp­to industry. 

Repub­li­can con­gress­man Tom Emmer on Wednes­day wrote a let­ter to the Fed­er­al Deposit Insur­ance Cor­po­ra­tion, argu­ing that the reg­u­la­tor was pur­pose­ly seek­ing to lim­it the bank­ing industry’s expo­sure to cryp­to markets. 

“A lot of peo­ple already under­stand the indus­try is rotat­ing away from the Unit­ed States, so in many ways, America’s cryp­to clam­p­down has been priced in by the mar­ket,” Solot said. 

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