Bitcoin, the world’s largest cryptocurrency by market capitalization, rose 4.82% in the week from March 17 to March 24 to trade at US$27,926 at 9:30 p.m. on Friday in Hong Kong. Ether rose 1.65% in the same period to US$1,772.
“Surging activity on the Bitcoin network is causing profitability to recover to levels consistent with the start of previous bullish cycles. The network is still expensive relative to transaction values but less so than at the start of February,” wrote Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence, in a research note shared with Forkast.
Maxwell Goldstein, the co-founder of Freeport, an on-chain fine art investment platform, said that this week’s price action was mainly driven by the U.S. Federal Reserve’s monetary policy decision.
The Federal Reserve raised its key interest rate by an expected 25 basis points on Wednesday. Bitcoin slid 1.94% to US$27,676 the day after the rate hike, also pressured by market concern of a banking crisis after U.S. Treasury Secretary Janet Yellen said the government is not considering a “blanket insurance” on bank deposits.
“Traders are flocking to Bitcoin and similar assets to diversify their holdings. Recent bank failures have also strengthened the case for investing in Bitcoin, along with murmurs of hyperinflation,” wrote Goldstein, adding that due to looming fears of inflation, “investors are absolutely seeking a safe haven asset and Bitcoin fits the bill.”
The global crypto market capitalization stood at US$1.17 trillion on Friday at 9:30 p.m. in Hong Kong, up 2.6% from US$1.14 trillion a week ago, according to CoinMarketCap data. Bitcoin’s US$537 billion market cap accounted for 46.3% of the market, while Ether’s US$216 billion accounted for 18.6%.
Banks vs Bitcoin
“The past several months have seen efforts by officials to cut liquidity from the crypto ecosystem, underscoring why Bitcoin matters and how desperate central planners are to keep the fiat credit system from imploding,” wrote Coutts.
Coutts was referring to recent black swan events like the liquidation of crypto-focused bank Silvergate, which provided lending services for large crypto companies like Coinbase and Crypto.com.
Former congressman and Signature Bank board member Barney Frank told CNBC on March 13 that the bank’s closure meant that “regulators wanted to send a very strong anti-crypto message.”
The New York State Department of Financial Services (NYDFS) said the following day that Signature’s closure had nothing to do with crypto and that the decision was “based on the current status of the bank and its ability to do business in a safe and sound manner.”
Coutts disagreed with the regulator, saying that Signature’s shutdown was a deliberate message for the crypto industry.
“The bank [Signature Bank] was still meeting withdrawal requests, and [the bank’s] board member Barney Frank said regulators ‘wanted to send a message to get people away from crypto,'” wrote Coutts.
“The statement by Frank marries with the data,” added Coutts. “Based on the last reported numbers, unrealized losses from held-to-maturity assets for Signature Bank were 27.4% of book value, below the average for the S&P 500 banks industry group at 36.6%.”
Kadan Stadelmann, chief technical officer of blockchain infrastructure development firm Komodo, said that Bitcoin has always performed well during tumultuous times.
“It would have been reasonable to assume Bitcoin might behave similarly when three crypto-facing banks – Silvergate, Silicon Valley Bank, and Signature Bank – collapsed one after another,” he said. Instead of a sharp decline in price, Bitcoin slipped and began to rise. “If people can’t trust banks, Bitcoin would be a beneficiary.”
“Investors are scrambling to find safe havens. Gold increased to US$2,000 per ounce. We’ve also seen the world choose Bitcoin as a safe haven,” added Stadelmann.
Jonas Betz, a Germany-based crypto analyst, said that Bitcoin was created to hedge against a failing banking system but warned that the closure of crypto banks may lead to a liquidity shortage.
“The recent closure of operations by Silvergate and Signature has resulted in a significant reduction in liquidity in the crypto markets. These banks provided systems (SEN and Signet) that were important for facilitating the entry of fiat currency into the crypto market. With limited options available, the industry is likely to face a liquidity crunch until new banks step in. This leads to increased volatility in crypto prices,” wrote Betz.
See related article: Centralized intermediaries were cause of crypto failures in 2022, says Voorhees
Biggest gainers: MASK & FLR
MASK, the governance token of Mask Network, a mobile app and browser extension that aims to bridge Web 2.0 with Web 3.0, was this week’s biggest gainer among the top 100 coins by market capitalization listed on CoinMarketCap. The MASK token rose 35.43% to US$6.13 and started picking up momentum on Thursday, after it was listed on CoinMarketCap.
FLR, the utility token of interoperability-focused layer-1 blockchain Flare Network, was the week’s second-biggest gainer in the top 100, rising 15.42% to US$$0.03327. The token started gaining momentum on March 17, after Flare announced the first of 36 monthly airdrops for the community.
Next week: Bitcoin to US$30,000?
“The 25% rise in Bitcoin’s price from last Friday’s lows has nearly eliminated losses of the previous 12 months for 72.41% of the network’s BTC-holding entities,” wrote Coutts.
At the start of 2022, some 75% of these entities were profitable. Today, with Bitcoin prices lower than a year ago, the average cost for a Bitcoin entity is lower than price. This has resulted in higher profitability,” wrote Coutts.
Slava Demchuk, the co-founder of AMLBot, a developer of crypto anti-money laundering software, said that investors should monitor the impact of the Fed’s interest rate hike on banks and financial institutions.
“If [banks] continue to struggle, the Fed may persist in reducing interest rates, which would facilitate even more capital into the economy. This scenario would also impact cryptocurrency prices, as they often reflect these changes faster than the other financial assets,” wrote Demchuk.
Freeport’s Goldstein expects more Bitcoin volatility as the banking crisis unfolds.
“Prices will likely not break through the US$30,000 mark unless another major threat to the U.S. banking system comes into play. If the Fed continues to hike interest rates, Bitcoin will face increased downward pressure,” wrote Goldstein.
Alex Reinhardt, the founder of the financial education platform Reinhardt Academy, said that further banking issues could propel Bitcoin above US$30,000.
“Reaching US$30,000 in the next week and US$35,000 in the next 2-3 weeks seems realistic. As we’ve seen in the past, strong growth waves in the crypto market can quickly turn into an avalanche-like movement, triggering both panic sales and panic buying,” wrote Reinhardt.
Marat Minkin, the co-founder of DeFi payment app TONBanking, expects Bitcoin’s safe haven narrative to fuel its rally to above US$30,000.
“Key price level remains at US$28,600-28,750. Bitcoin’s uptrend will continue next week, and the U-turn will be completed at US$32,000 by the end of the next week to close the month with a positive monthly gain,” he wrote.
See related article: Banks are bringing systemic risks to crypto, says Circle’s Disparte