Bitcoin is up 50% so far in 2023, beating major commodity and stock indices. Industry insiders said the bank’s collapse has sent investors looking for alternatives to the traditional banking system and a slowdown in rate hikes is also anticipated, helping bitcoin.
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Bitcoin climbed past the $28,000 level over the weekend as investors rediscovered its appeal as an alternative banking system.
On Monday, the cryptocurrency had retreated somewhat. Bitcoin fell more than 2% to $27,705.23, according to Coin Metrics. Earlier in the day, it reached $28,554.07, its highest level in nine months. Meanwhile, ether fell 3.5% to USD 1,765.60.
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The weekend rally in bitcoin came amid ongoing turmoil in the global banking sector. On Sunday, UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.2 billion) in a deal brokered in part by Swiss regulators seeking to contain contagion in the global banking sector.
“Bitcoin continues to trade as a leading risk-on asset, as it has for the past two years,” said James Lavish, managing partner at the Bitcoin Opportunity Fund. “Credit Suisse’s bailout has put out a major credit fire… this is encouraging bitcoin buyers now anticipating the Fed slowing rate hike and signaling an imminent pause this week.”
As of Monday afternoon, there is about a 72% chance of a quarter-point hike, according to the Fed Data from the CME group using Fed Funds futures contracts as a guideline. The remaining 28% expect no increase and that Chairman Jerome Powell will ease his aggressive tightening campaign due to the emerging financial contagion.
Bitcoin is coming off best week since January 2021which was right before the first bull run that year, while ether just posted its best weekly gain since August 2021. The two are up 67% and 46% respectively this year.
Bitcoin proponents have often referred to it as “digital gold,” referring to it as a store of value, particularly in times of global turmoil, and one that is uncorrelated with other asset classes. However, Bitcoin more often than not trades in line with stocks, and in particular the tech-heavy Nasdaq.
But there are signs that bitcoin’s price movement is starting to decouple from stocks for now.
“If you look at the history of bitcoin and why it was created in the first place, it is precisely for events like this where the current system shows signs of weakness and that is why owning an uncorrelated asset helps,” Vijay Ayyar , vice president of corporate development and international at crypto exchange Luno, told CNBC.
“There has been quite a bit of debate over the years over this argument that bitcoin is an uncorrelated asset class, but we are now seeing this view potentially confirmed.”
While gold is up about 9% this year, bitcoin is up more than 70%.
Other cryptocurrencies did not see the same jump as in bitcoin on Monday. Ether was trading roughly flat. Other cryptocurrencies are not seen by proponents as “digital gold”, the way bitcoin is.
“As this banking crisis plays out, it will be interesting to continue to monitor Bitcoin price action as more and more people view Bitcoin ownership as a smart alternative to the current system,” Ayyar said.
