Bitcoin Is the Undisputed Winner of the US Banking Crisis

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Since the failure of Silicon Valley Bank (SVB) on March 10, the price of bitcoin (BTC) has skyrocketed.

In the early hours of March 10, bitcoin was trading about $19,600. Up until about 12 p.m., it oscillated just above and below $20,000.

ET when it was revealed that SVB would be taken over by the FDIC. At that time, bitcoin lost $200 and fell below $20,000 before briefly bouncing around and trading above $20,000 for the majority of the weekend.

By 9:30 a.m. ET on March 13th, it was trading at $22,386. Then the fun started. A mere 24 hours later, bitcoin was trading at $26,175, briefly approaching $26,500 at one point. It is currently worth roughly $26,700 as of publication.

I’ve argued that narrative has a significant impact on asset prices (here, here, and possibly elsewhere). Ask Federal Reserve Chair Jerome Powell, who asserted that “people’s expectations of inflation have a genuine effect on inflation,” if you don’t believe me.

What then happened to the story to produce this kind of forceful 35% trough-to-peak change? Really, it’s just that a lot happened.

Aside from the bank failures

Given the history of Bitcoin, the relationship between this and a bank failure is clear: at least three banks have already failed, and others, both American and foreign, are in trouble. It’s advantageous for the price of bitcoin because it’s not due to it.

As no one is certain if the three bank failures are the result of insolvency, it is actually unclear who is to blame.

Yes, SVB did fail as a result of a classic bank run that was sparked by obvious flaws in its balance sheet brought on by subpar duration risk management.

Moreover, Silvergate was having problems and had to obtain an FHLB loan, but it was later revealed that the closure was voluntary. Then there is the case of Signature Bank, where even the regulators are unable to determine if the bank’s closure was caused by cryptocurrency or a “crisis of trust” in its management.

Let’s also mention that the overall banking sector is subject to bigger hazards. The Swiss central bank recently loaned Credit Suisse (CS) 50 billion Swiss francs, while 11 banks recently invested $30 billion into California-based regional bank First Republic Bank (FRC) to preserve it.

The fact that the central bank wants to salvage Credit Suisse on the first point is telling. The fact that banks seek to save a rival company out of concern for contagion is arguably more telling regarding the latter. (If not, why wouldn’t they simply let a rival to fail?)

After all of that, there is one thing we are certain is not causing these banks to fail. Bets in bitcoin, cryptocurrencies, or businesses in those sectors did not put these banks in jeopardy. The fractional reserve banking system appears to be under pressure from rising interest rates and developing fractures.

As the banks fail, choose to not participate and purchase bitcoin, the story goes. That story is compelling enough to drive up the price.

Stablecoins, on the other hand, were unstable.

With the fall of Signature Bank, we saw U.S. dollar stablecoin USD coin (USDC) lose its dollar peg last weekend. Although USDC was able to regain its peg within the week, the loss of the peg understandably alarmed many individuals.

To USDC’s credit, it is important to take into account how quickly it returned to $1. But, its depeg did show that USDC is not immune to counterparty risk, contrary to what some may have mistakenly believed.

You might wonder, “Is there anything without counterparty risk?” if it is determined that USDC and the dollars in a bank account both have counterparty risk.

Yes, there is with bitcoin, of course.

The world’s largest cryptocurrency exchange by trading volume, Binance, converted $1 billion of the stablecoin Binance USD (BUSD), pegged to the dollar, to bitcoin, ether, and other cryptocurrencies in the early hours of March 13. This is a related stablecoin article.

Coinbase, a competitor cryptocurrency exchange to Binance, officially stopped allowing BUSD trading on its platform due to “liquidity issues,” which led to the conversion.

In addition to increasing the buying pressure, Binance’s offer may have encouraged others to convert their BUSD to bitcoin through a “follow the leader” effect.

And the US Federal Reserve, if I had another hand.

It appears that the US Federal Reserve will stop raising interest rates going forward. This would provide the market as a whole with a much-needed reprieve, especially since some people, including myself, believe that the failure of these banks was directly related to the rate increases of almost 20 times over the previous year.

Jocelyn Yang from CoinDesk explains:

Naturally, that’s just the market jumping on the claim that the rate hike may not be as significant as initially anticipated. The Fed has not made any indications that this will be the case. That “story and expectation” is gone once more.

Finally, I keep saying bitcoin, but shouldn’t I be saying cryptocurrency?

I don’t mean crypto, though. I refer to bitcoin.

Bitcoin’s price is rising more quickly than even the much smaller and much more volatile altcoins in the midst of all the market instability.

This is demonstrated by bitcoin dominance, which on Wednesday hit a nine-month high of 45.5% and compares the market capitalisation of bitcoin to that of other cryptocurrencies.

In conclusion, systemic global bank risk exists, stablecoins in cryptocurrency have shown they require stable banks, and among all the anxiety, the Federal Reserve may be holding off on rate increases. All of these combined to cause bitcoin to increase significantly during the past week.

It’s anyone’s guess how long that lasts. Uncertainty is never welcome, to be sure, given the potential harm it could do to people’s lives. But, for the time being, bitcoin appears to be a method to avoid this most recent crisis due to its fixed supply during a period of monetary expansion.

Perhaps it is.


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