The price of bitcoin has risen sharply in recent months, especially accelerating since March 12 amid problems in the banking sector in the US and Europe. During this time, it has grown by more than a third, reaching $ 28 thousand on March 21. This is the maximum since June last year. Other cryptocurrencies followed in the same direction. Such a rapid growth occurred for the first time in a very turbulent year for the crypt, when it basically lost in price. Why bitcoin this time turned out to be more stable than oil and shares of the financial sector, bitcoinlinux figured out.
Triumph after disaster
The takeoff turned out to be paradoxical, because at the first signals of a crisis in the global economy, digital currencies always entered the “bear market”, repeating the trajectory of the movement of emerging market currencies and commodities – and thereby refuting the idea of enthusiasts that cryptocurrencies are insurance against economic shocks.
2022 has been a catastrophic year for the cryptocurrency industry. During the year, the rates of the main virtual monetary units collapsed 3-4 times. Several large investment firms and trading floors collapsed at once, like the FTX exchange. It turned out that in the face of real problems in the financial markets, with rising rates, inflation and the threat of a recession, cryptocurrencies do not provide any protection, essentially remaining either a speculative toy, or a niche instrument for gray transactions, or a means of accumulation and settlement for individual blockchain enthusiasts. If the market falls, so does the crypto, which means that there is no point in it for a wide range of investors.
But in March 2023, there was a new turn that turned out to be quite unexpected for many analysts. Since March 10, a bunch of problems have been discovered at the Californian Silicon Valley Bank (SVB). It soon became clear that the credit institution, in which half of the Silicon Valley companies held deposits, was insolvent, and the situation was so bad that there was simply no buyer for SVB for any money.
The situation was close to disaster in several other large US banks, so the air smelled of a new “Lehman Brothers moment” (from the collapse of which the acute phase of the global financial crisis began). Later, the situation spread to Europe, where regulators organized a “voluntary-compulsory” takeover of the second largest Swiss bank Credit Suisse by the first – UBS. The panic of September 2008 has not yet reached, but the stock market crash on both sides of the Atlantic turned out to be quite epic. Banks dragged away many raw materials after them – for example, Brent oil almost fell to $ 70 per barrel. In a word, the collapse happened in all market segments with rare exceptions.
Virtual Proof Gold
Cryptocurrencies are one of those exceptions. Over the past 10 days, Bitcoin has added about 35% of the value, Ethereum – about 20%. At the same time, since the beginning of the year, the most popular cryptocurrency has grown from $16.5 thousand to more than $28 thousand. Such a powerful rise in the markets has not been seen since 2021.
The bitcoin surge was supported only by assets such as US government bonds and other most reliable government borrowers, as well as gold, which exceeded $2,000 per troy ounce.
A separate story is some non-Western stock markets, for example, the Russian one, which also experienced not the worst weeks in March. But in all cases, the growth was much more modest. It turned out that cryptocurrencies in the conditions of the current chaos on world exchanges have just become a “safe haven” in which you can wait out the storm.
Some investors seized on this growth. Their voice was one of the former leaders of the leading exchange Coinbase (which, by the way, against the backdrop of the “hostility” of the United States to cryptocurrencies, is thinking about moving) Balaji Srinivasan, who said that bitcoin “does not protect against inflation, but protects against hyperinflation”, which may occur as a result of the liquidation of the consequences of a new banking crisis. According to him, bitcoin should be worth a million dollars: gold once ruled the global economy, and now virtual gold will take its place.
The takeoff you didn’t expect
There is nothing new and original in such reasoning (as well as in objections to them), but the phenomenon of the rise of cryptocurrency in March 2023 is indeed interesting and contradicts everything that we have seen before. According to Finam analyst Leonid Delitsyn, the fundamental reason for the rise in price of bitcoins is the problems of the traditional economy, which is being saved through financial assistance. The influx of fresh money overtakes the influx of bitcoins, so the cryptocurrency rises in price.
– In this case, the instability of medium-sized American banks and large European banks was discovered, and it was decided to save them all – in the sense of paying all the money to depositors. The crypto-currency market expects that some of this help will get to it sooner or later. Critics of the bank bailout policy say the bailout will make banks even more careless. It is logical to assume that as a result, the crypto market will get even more, the expert notes.
Delitsyn noted that long-term investors, enthusiasts of the crypto-industry who believe in its future victory over traditional finance, are also participating in the acceleration of bitcoin.
“Now they are encouraged by the signals of a global banking collapse and will no longer sell bitcoins cheaply, waiting for the price to rise. As a result, both pragmatists and enthusiasts move the price of cryptocurrencies up,” he explains.
According to TeleTrade analyst Vladimir Kovalev, the specifics of the situation is that it does not lie in geopolitical risks and not just in the dangers of economic cataclysms.
– Now the situation is different, rare, which has practically not been since 2008, when there was not even a sufficiently developed cryptocurrency market. The reliability of the banking system and cash deposits is being called into question, traditional reliable financial instruments — government and mortgage bonds — are depreciating, regulatory pressure from central banks is increasing, and the mass of fiat money is increasing, which contributes to their depreciation, the analyst clarifies.
He added that in such unusual conditions, market participants seek to seek salvation, including in alternative money – not regulated by central banks, not dependent on credit institutions and their reliability, from the traditional financial sector, with a limited possibility of issuance and inflation.
“Thus, the demand for bitcoin is no longer just speculative, as it happened before when its rate took off. Now there are deeper reasons for its rise in popularity, it has become less risky than fiat currencies in a hectic market. A million dollars for bitcoin is, of course, still unlikely. But the prospects for this trend largely depend on the outcome of the crisis. In the event that the situation stabilizes and the risks of high inflation are overcome, bitcoin will gradually return to the framework of a more calm trade and exchange rate,” sums up Kovalev.
