Cryptocurrencies stood out this week as bank stocks fell and a global liquidity crunch rocked equity markets. In the week ending March 17, Bitcoin gained 34%, making it the cryptocurrency’s best week since January 2021 — marking the start of the institutional-led bull run that year. Coin Metrics measures a week of crypto, which is traded 24 hours a day, from the close of the stock market from Friday to Friday. Bitcoin is now up 62 percent for the year. BTC.CM = YTD mountain of Bitcoin (BTC) in 2023 Ether ended the week higher by 23%. At one point, it was trading around $1,780, a level not seen since its rally before the Ethereum merger in September. The price of ether has increased by 45% since the beginning of the year. “Crypto has impressed because the unexpected banking crisis has triggered the realization that Fed policy is very restrictive and that the economy is headed for recession,” said Ed Moya, senior market analyst at Oanda. “The Fed now has to decide whether they have enough information about the mounting risks that are spreading across multiple banks. Inflation is on the way down, but some officials may want to raise one more rate before the break, which could trigger a risk-off moment on Wall Street.” Bitcoin vs. Banks The price of Bitcoin rallied twice above the key level of $25,200 to above $26,000, according to Coin Metrics. It hasn’t seen this level since June, days before the pre-FTX low around $18,000. BTC.CM = 1-year mountain Bitcoin, 1-year Bitcoin’s outperformance in the midst of a crisis in the traditional banking system led some to wonder if the price rose as a result of a possible narrative shift. Although Bitcoin was originally conceived as a digital cash and alternative financial system, it spent much of the last year trading like a speculative asset. Last week it even fell with risk markets and banking stocks amid uncertainty surrounding Silvergate Bank. However, that changed this week after the closing of Silicon Valley Bank and Signature Bank, giving the impression that investors were trading on its core value proposition, the ability to “be your own bank.” “When the financial system shows cracks, it provides an opportunity for diversification,” said Callie Cox, eToro’s US investment strategist. “Of course, there are pros and cons to a decentralized versus centralized approach, but so far investors seem to be focusing on one particular perspective.” However, if the original bitcoin story started to click with people this week, it doesn’t change the fact that macro themes are still the biggest price driver. “In practice, bitcoin has not been isolated from the traditional banking system. Crypto prices rose rapidly in 2020/2021 due to central bank monetary growth, which caused capital to move from the traditional fiat banking world to the crypto world,” Morgan Stanley analyst Sheena Shah said in a note this week. “So our conclusion is that the Bitcoin network can function without banks, but the price of bitcoin and thus its purchasing power has been and continues to be influenced by Fiat’s central bank policy and needs banks to facilitate crypto flows.” Next week Many agree that the price of bitcoin bottomed out in late 2022 during the FTX crash, but there is still so much uncertainty in the market and it has been difficult for traders to identify what the start of another bull run would look like. From a technical perspective, according to Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank, this week’s move above $26,000 could be that signal. However, Fairlead Strategies’ Katie Stockton is looking for two consecutive closes above $25,200 to form a “long-term bullish trend.” Investors will continue to monitor the banking crisis and regulation in the coming week. The Federal Reserve begins its two-day policy meeting on Tuesday. “Bitcoin’s rally could hold up if the Fed decides to end its tightening cycle and wait and see what happens next in the banking turmoil,” Moya said. “Traders are already pricing in rate cuts this summer, so we’ll see what happens if the Fed continues to focus on inflation and deliver another quarter point hike. A break and Bitcoin could see a run towards the $30,000 level.” Given the market’s pulse and the Fed’s recent comments on inflation, Moya said the latest rally should be a base case — and could bring bitcoin back to the middle of this month’s trading range, he added.
Bitcoin is up 60% this year as investors rediscover its appeal as an alternative banking system