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Here’s why bitcoin is rallying after collapse of Silvergate, SVB and Signature

MarketWatch logo MarketWatch 3/14/2023 Frances Yue
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Bitcoin is seeing its best three-day performance since October 2019, as the collapse of three U.S. banks in a week fueled some investors’ hope that the Federal Reserve may have to take a less aggressive approach with its interest rate hikes.

The largest cryptocurrency on Tuesday climbed to its highest level since June 2022, up 8% over the past 24 hours and up 30% over the past three days, according to CoinDesk data. 

Last Wednesday Silvergate Bank said it would wind down and return money to depositors, and over the weekend Silicon Valley Bank and Signature Bank were shut down by the Federal Deposit Insurance Corporation. The Federal Reserve on Sunday announced an emergency lending program to backstop depositors at both banks and across the banking system. 

Some market analysts think the Fed may be forced to take a less aggressive approach to its interest rate hikes as a result given the contagion risk for other regional banks.  

Read: ​​Banking-industry jitters could mean more pain for stocks as the Fed’s battle with inflation is dragged out

The repricing of expectations for the Fed’s interest rate moves may invite a more investor-friendly market environment, according to Joel Kruger, market strategist at LMAX Group. 

The Dow Jones Industrial Average gained over 81 points, or 0.3% Tuesday. The S&P 500 rose 0.9% and the Nasdaq Composite went up 1.4%, according to FactSet data.

For the past few years, bitcoin has been traded mostly as a risky asset and often in tandem with U.S. stocks. However, crypto’s recent outperformance over stocks might point to a potential shift in the narrative around the cryptocurrency, which is decentralized and has a maximum supply of 21 million, market participants said. 

“Often erroneously thought of as an inflation hedge, Bitcoin should be thought of as a protest against the banking system and monetary policy,” Alex Thorn, head of research at Galaxy Digital, wrote in a Monday note. “Broadly speaking, the core value proposition of decentralized cryptocurrencies is the ability to be your own bank, make your own payments, and opt out of the traditional financial system,” Thorn wrote. 

Aaron Rafferty, chief executive at Standard DAO, echoed the point. “​​In essence, everything that is occurring with the banking industry today is the reason bitcoin was created back in 2008 after bankers lost billions of dollars of taxpayer money and did not uphold their fiduciary duty,” Rafferty said. 

Still, Mina Tadrus, chief executive at Tadrus Capital, said he thinks the recent upswing is simply part of crypto’s natural volatility. 

Investors remained worried that the closure of crypto-friendly Silvergate and Signature would further limit digital asset companies’ access to banks in the U.S., making it harder for institutions to purchase cryptocurrencies with fiat currencies, and weighing on the liquidity of the crypto market. 

Read more: Collapse of Signature, Silvergate may create crypto liquidity issues as banks shy away from purchases

With the price surge, bitcoin’s trading volume and volatility both surged to the highest level since November 2022, when crypto exchange FTX collapsed, analysts at K33 Research wrote in a Tuesday note. 

From the technical perspective, if bitcoin’s price can hold up above $25,000, an important support level, it could set the stage for the next big push to the top side, said LMAX’s Kruger. However, if the crypto fails to stay above that level, it would open the door for more correction and consolidation, Kruger said. 

The next resistance level is $30,000, where there has been a lot of concentrated option activity, noted Greg Magadini, director of derivatives at Amberdata. 


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