Cryptoverse: Bitcoin passes the bank stress test

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As cri­sis stalks the tra­di­tion­al world of stocks and bonds, bit­coin is sud­den­ly look­ing like a safe haven.
The infa­mous­ly volatile cryp­tocur­ren­cy seems pos­i­tive­ly hale and hearty, just as a bank­ing melt­down dri­ves mar­kets into the arms of a reces­sion.
Bit­coin has risen 21% this month, while a chop­py S&P 500 has lost 1.4% and gold has gained 8%.
“If you were going to describe an envi­ron­ment where there were suc­ces­sive bank runs because cen­tral banks are try­ing to fight infla­tion with fast rate increas­es, that is pret­ty close to as spot-on a the­sis for own­ing bit­coin as you’ve ever heard,” said Stéphane Ouel­lette, CEO at dig­i­tal asset invest­ment plat­form FRNT Finan­cial.
The cryp­tocur­ren­cy has, for now, sev­ered its ties with stocks and bonds and tagged on to a ral­ly in gold, ful­fill­ing at least one part of cre­ator Satoshi Nakamo­to’s dream — that bit­coin can serve as a refuge for suf­fer­ing investors.
Bit­coin’s 30-day cor­re­la­tion with the S&P 500 has slid to neg­a­tive 0.12 over the past week, where a mea­sure of 1 indi­cates the two assets are mov­ing in lock step.
A sell­off in banks has wiped out hun­dreds of bil­lions of dol­lars in mar­ket val­ue and forced U.S. reg­u­la­tors to launch emer­gency mea­sures. The past cou­ple of weeks has seen Sil­i­con Val­ley Bank and cryp­to lender Sil­ver­gate go under, while Cred­it Suisse has teetered on the brink.

‘RETURN TO CORE ETHOS’

Let’s not car­ried away, though. This is bit­coin.
“The bear­ish argu­ment would be that these dynam­ics are tem­po­rary, and ulti­mate­ly this ral­ly is not going to sus­tain,” said Ouel­lette.
It remains to be seen if bit­coin’s bull­ish­ness will endure as atten­tion shifts to the Fed­er­al Reserve’s pol­i­cy meet­ing this week where the U.S. cen­tral bank must walk a fine line as it fights infla­tion and bank stress­es.
Fur­ther­more, the cryp­tocur­ren­cy’s allure has­n’t all been about safe­ty.
The rapid price rise has forced some short-sell­ers to cut their bets and buy coin back. Data from Coin­glass shows traders liq­ui­dat­ed $300 mil­lion worth of cryp­to posi­tions on Mon­day, with most of that total — $178.5 mil­lion — short posi­tions.
Nonethe­less, bit­coin is resur­gent.
It now com­mands near­ly 43% of the total cryp­to mar­ket, its high­est share since last June, accord­ing to Coin­Mar­ket­Cap data, while the total cryp­tocur­ren­cy mar­ket’s cap­i­tal­iza­tion has jumped 23% to $1.1 bil­lion since March 10.
“We’re see­ing a return to bit­coin’s core ethos, that of a finan­cial asset inde­pen­dent from 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 main­stream bank cri­sis has also fueled some inter­est in DeFi, with the total val­ue of tokens linked to such plat­forms ris­ing to $49 bil­lion from $43 bil­lion over the past week, accord­ing to DappRadar.

BITCOIN IN A BANK CRISIS

Not all areas of the dig­i­tal world have been immune to the bank­ing fall­out, though. The no. 2 sta­ble­coin Cir­cle USD or USDC lost its 1:1 peg to the dol­lar after dis­clos­ing its reserves were parked at the shut­tered Sil­i­con Val­ley Bank.
As wor­ries spread over USD­C’s abil­i­ty to main­tain its peg, its mar­ket cap slid to $36.8 bil­lion last Fri­day from $43.8 bil­lion a week ear­li­er, even as lead­ing sta­ble­coin Teth­er gained around $4 bil­lion.
Mar­ket par­tic­i­pants said some USDC with­drawals were like­ly rein­vest­ed in bit­coin as well, help­ing fuel the ral­ly.
“It’s too soon to say that bit­coin has proven the nar­ra­tive that it’s an alter­na­tive in a bank­ing cri­sis,” cau­tioned Ed Hin­di, Chief Invest­ment Offi­cer at Tyr Cap­i­tal in Gene­va.
But he added: “The ral­ly we are cur­rent­ly wit­ness­ing in bit­coin will be looked back at as the point in time where its main prop­er­ty as a decen­tral­ized non-sov­er­eign asset was stress tested.” 



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