Bitcoin hit its highest level in nine months on Friday as crypto traders moved funds out of banks and interest rate expectations shifted sharply.
The dollar-denominated price of the original and largest crypto coin surged more than 30 percent this week to over $27,000, the highest point since the start of the crisis of confidence that gripped the market last summer. The second-largest token, Ether, rose to fifth place over the same period.
Buyers emerged after a week of intense turmoil for the world’s banking industry on both sides of the Atlantic as investors worried about the valuation of smaller banks’ bond portfolios and business models.
The US government and big banks stepped in to stabilize the system while the Swiss central bank provided a $54bn emergency backstop for lender Credit Suisse. The uncertainty has fueled speculation that the Federal Reserve and the European Central Bank will pause their plans to raise interest rates aggressively to curb lingering inflation.
Over the past 18 months the price of bitcoin, once touted as a hedge against inflation, has often been correlated with traditional stock indexes such as the S&P 500 and Nasdaq Composite and has been sensitive to traders’ expectations on interest rates.
Traders point out that when investors fear crypto prices, they move funds into bank deposits and stablecoins. When banks are concerned, they move quickly to buy tokens.
“Fears over the stability of the banking system, along with falling real interest rates, create a good environment for bitcoin to recover as some investors see it as a hedge against systemic risks,” said Ilan Sollot, co-head of digital assets at London broker Marex.
0s) Shows Bitcoin Rises Amid Banking Volatility" data-lazy-srcset="https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F58c91d10-c4c5-11ed-a078-eb2e62c08421-standard.png?dpr=1&fit=scale-down&quality=highest&source=next&width=700 1x, https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F58c91d10-c4c5-11ed-a078-eb2e62c08421-standard.png?dpr=2&fit=scale-down&quality=medium&source=next&width=700 2x" data-lazy-src="https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F58c91d10-c4c5-11ed-a078-eb2e62c08421-standard.png?dpr=1&fit=scale-down&quality=highest&source=next&width=700">
The market’s recovery has also been boosted by assurances from US authorities that deposits in failed Silicon Valley banks will be protected.
Circle, the operator of the crypto market’s second-largest stablecoin USDC, admitted it had $3.3bn stuck on SVB, causing the stablecoin’s value to temporarily drop 88 cents.
Stablecoins act as a conduit between crypto and sovereign money and are supposed to maintain their value one-to-one against the dollar at all times.
Despite the short-term recovery for digital assets, the turmoil in the banking sector casts doubt on the crypto industry’s long-term footprint in the US.
Along with Silvergate and Signature, SVB was one of a trio of crypto-friendly banks that met their demise in recent days. Their failures have fueled fears among industry supporters that the US is de-banking the crypto industry.
Republican Congressman Tom Emmer wrote a letter to the Federal Deposit Insurance Corporation on Wednesday, arguing that the regulator is intentionally seeking to limit the banking industry’s exposure to crypto markets.
“Many people already understand that the industry is moving away from the United States, so in many ways, America’s crypto clampdown has been priced in by the market,” Sollot said.
