It is an indisputable fact that last year was extremely bad for cryptocurrencies. First with the bankruptcy of the TerraUSD stablecoin, and then with the collapse of the FTX crypto exchange, the market managed to lose about 2/3 of its value.
However, since the beginning of the year, little by little, the situation with digital currencies has stabilized. And amid current instability in the banking sector, inflation woes and renewed hopes of easing monetary policy by the US Federal Reserve, the biggest of these, Bitcoin, has pushed its price back to levels the currency last reached last June , notes Bloomberg.
Already over the weekend, the cryptocurrency’s market capitalization passed the $28,000 threshold for one bitcoin, reaching a peak of over $28,500 on Monday morning. According to data from CoinDesk, the growth for the day exceeded 3%.
The increase in value also affected the second most important digital currency, ether, which added 1.6% to its price, reaching $1,806. In addition, ripple increased in price by 1.3%, cardano – by 1.8%, and solana – by 8.3%.
One of the positive trends in crypto markets is that since the beginning of the year, the price of Bitcoin has increased by as much as 70%, and the positive trend is also observed in other leading cryptocurrencies.
Even amid the uncertainty of last week, when the two leading US banks that traded in digital currencies went bankrupt, Bitcoin managed to remain stable.
This is particularly impressive against the backdrop of a situation where the yield on 2-year US Treasury securities has been highly volatile and the Cboe Volatility index, known as a gauge of fear, has jumped to more than 30 points.
“Bitcoin correlates with liquidity conditions and real interest rates. Real interest rates have decreased, liquidity conditions are increasing, and it looks like we’re entering a new regime,” Ilan Solot, head of digital assets at Marex, told Bloomberg.
Initially, the sentiment of many was that the Silvergate and Signature Bank bankruptcies would destabilize cryptocurrencies. However, it turns out that mistrust in crypto is currently less than in traditional banking systems. And this, in turn, led to a resurgence of appetites for risky assets.
The appeals of a number of investors to the US Federal Reserve to stop its cycle of interest rate hikes also had a positive influence in this case. It is debatable how far they will respond to the requests, especially in view of the advanced consumer price index in the country.
In other words, America still has rising inflation to contend with, and the Fed’s reaction is hard to predict right now.
This uncertainty has worried many market participants, but not Bitcoin optimists, who see the cryptocurrency as a refuge from inflation. Many experts believe that this enthusiasm has played a role in the calm behavior of Bitcoin and other leading digital currencies in recent weeks.
Bitcoin’s proponents often refer to it as “digital gold,” arguing that the digital currency can be used to preserve the value of investors’ money, especially in times of global turmoil. However, the largest cryptocurrency more often trades in line with stocks and specifically the tech-heavy Nasdaq.
Analysts, however, point out that there are already signs that bitcoin’s price movement is starting to diverge from that of stocks.
“If you look at the history of bitcoin and why it was created in the first place, it’s precisely for events like this when the banking system shows signs of weakness, and therefore having an uncorrelated asset helps,” Vijay Aiyar, vice president of corporate development at crypto, told CNBC the Luno exchange.
According to him, there has been a lot of controversy over the years, but this is the first case where we can potentially see in practice whether Bitcoin can be considered an uncorrelated asset class.
The crypto-optimists also note that while the traditional store-of-value asset, gold, is up 9% in value, Bitcoin is up more than 70% since the end of 2022.
“As this banking crisis unfolds, it will be interesting to continue to watch the currency’s price movement as more and more people feel that owning Bitcoin is a smart alternative to the current system,” Ayyar commented.
However, more conservative economists continue to opine that when the two most significant US banks involved in crypto transactions have failed, the crisis cannot but catch up and hit the entire sector.
The truth is that in the current situation, when the main word that can be used to describe the situation is “uncertainty”, the behavior of such volatile assets as crypto are really complicated to predict.
However, if bitcoin now proves to be a safe haven during the current crisis, it could really turn the tide on it – both among investors and regulators.
