The past few weeks has been a nightmare for the global banking industry. We decrypt in this article the possible repercussions of such crisis on Bitcoin and on the crypto market in general. Remember that this article is written for informational purposes only and does not constitute investment advice.
The crisis started with the collapse of Silicon Valley Bank (SVB), a major lender to the tech sector, which triggered a bank run by its customers who feared losing their uninsured deposits. SVB's failure was followed by another US regional bank, Signature Bank, which also succumbed to a liquidity crisis over the weekend. A third US bank, First Republic Bank, narrowly avoided bankruptcy thanks to a $30 billion rescue package from a consortium of large banks.
The turmoil in the US banking sector has sent shockwaves across the world, rattling financial markets and raising fears of a new global recession. The credit ratings agency Moody's has downgraded its outlook for the entire US banking sector and put six banks on watch for potential rating cuts. The agency cited the risks of uninsured deposit outflows, bond losses and capital erosion as some of the factors that could weaken US banks further.
Meanwhile, one of Europe's biggest banks, Credit Suisse, has also faced severe pressure after it reported massive losses from its exposure to Archegos Capital Management, a hedge fund that imploded last year due to excessive leverage and risky bets on stocks. Credit Suisse was able to secure a $54 billion lifeline from other Swiss banks and regulators, but its future remains uncertain.
The global banking crisis has also had significant implications for Bitcoin and the crypto markets. This could comfort some investors' view of Bitcoin an other cryptocurrencies as a safe haven asset that can hedge against inflation and currency devaluation caused by central bank interventions. Bitcoin's decentralized nature and limited supply make it attractive as an alternative store of value that is not controlled by any government or institution.
Arguably as a direct result, the price of Bitcoin (BTC), the leading cryptocurrency by market capitalization, has experienced a sudden surge in the past week. According to CoinMarketCap, BTC reached a high of $27,710 USD on March 17, 2023, up from $23,532 USD on February 16, 2023. This represents a 17.7% increase in one month. The current banking crash might be the starting point of a series of events that helped increase BTC's price.
On March 8, 2023, MicroStrategy, a business intelligence company that holds over 90,000 BTC as part of its treasury reserve strategy, announced that it had purchased an additional $15 million worth of BTC at an average price of $45,710 per coin. This increased its total holdings to over $2.1 billion USD at current prices. MicroStrategy's CEO Michael Saylor has been a vocal advocate of Bitcoin as a store of value and a hedge against inflation.
According to data from Glassnode, a blockchain analytics platform, the number of active Bitcoin addresses (those that have sent or received BTC in the past 24 hours) reached an all-time high of over 1.36 million on March 14, 2023. This indicates a high level of network activity and user engagement. Moreover, according to Google Trends, the global interest in Bitcoin as measured by online searches has also spiked in the past week, reaching levels not seen since December 2017 when BTC hit its previous record high.
A possible factor contributing to this price surge is the technical analysis of Bitcoin's price movements and patterns. Some analysts have observed that BTC has broken out of a consolidation phase that lasted for several weeks between February and early March 2023. During this period, BTC traded within a narrow range between $22,000 and $24,000 USD with low volatility. However, on March 13, 2023, BTC broke above this range and started a strong uptrend that pushed it above $25,000 USD for the first time since January 2023. Some traders have interpreted this as a bullish signal that indicates further upside potential for BTC and other crypto-assets.
These are some of the possible explanations for how to explain last week's sudden rise in Bitcoin price. However, it is important to note that Bitcoin is a complex and dynamic asset that is influenced by many factors beyond these three. Therefore, it is advisable to do your own research and due diligence before investing or trading in Bitcoin or any other cryptocurrency.