Crypto Markets Growing amid Global Banking Crisis
2023.03.28 12:46
Crypto Markets Growing amid Global Banking Crisis
By Kristina Sobol
Budrigannews.com – The Federal Reserve of the United States made the announcement on March 19 that it had joined forces with a number of major central banks to support U.S. dollar cash flow and alleviate strains in global funding markets. These central banks include the European Central Bank, the Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank.
Additionally, Jerome Powell, Chair of the Federal Reserve, stated that swap lines, which are agreements between two or more central banks to maintain a crucial liquidity backstop and alleviate strains in global funding markets, will remain operational at least through the end of April.
This could bring about the Central bank easing back its rate climbs, which have been refered to as a contributing component to the continuous financial emergency.
Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse are just a few of the major financial institutions that have failed since the beginning of March 2023.
Bitcoin (BTC) has rallied despite these developments, reaching a high of $28,500 on March 24, the highest level since the crypto crash in June 2022. Bitcoin appears to have resumed its 2023 rally after a slump in March when it fell below $20,000
The digital currency has increased by an impressive 72.73 percent since January, when it was trading for around $16,500. Investors have had 4,065 profitable days out of the roughly 4,600 days that Bitcoin has been a tradable asset. This challenges the narrative that the crypto ecosystem is driven by instability.
Explanation of the banking crisis.
A slew of events in recent weeks have shaken the global banking industry and sent shockwaves through financial markets. Credit Suisse went bankrupt in Europe and had to be “rescued” by rival bank UBS.
People who had been following Credit Suisse’s financial and legal issues, which had been widely reported for months, were not surprised by this development.
The Swiss Public Bank and the Swiss Monetary Market Administrative Authority consented to back up Acknowledge Suisse for a crisis credit of 50 billion francs ($54.5 billion) if essential. UBS agreed to acquire Credit Suisse for $3.25 billion, which is significantly more than the initial offer of $1 billion, which Credit Suisse rejected, but less than half of the company’s prior market value.
Meanwhile, across the Atlantic, the United States is dealing with its own banking crisis. The recent collapse of SVB, Signature Bank, and Silvergate Bank prompted the Federal Reserve and the government to assist depositors. All of the aforementioned banks experienced massive bank runs. These occasions regularly happen when a bank loses the certainty of its clients, bringing about mass withdrawal demands.
The Federal Reserve has used the Bank Term Funding Program (BTFP) to cover deposits and add liquidity to the banking system in response to these developments, and politicians have reassured the public that the banking system is safe. Despite the fact that these actions have attempted to restore confidence in the financial markets and banking system, some analysts warn that they may only provide a short-term solution.
A recent study has shown that the banking system in the United States is very vulnerable, with many banks potentially going bankrupt in a bank run. The authors of the study point out that over 1,600 U.S. banks could collapse overnight if the worst-case scenario is that all uninsured deposits are withdrawn. Even more puzzling is the researchers’ assertion that 106 banks would fail even if only 30% of uninsured deposits were withdrawn.
Cryptocurrency appears to be favored by the numbers.
At the time of this writing, Bitcoin is up more than 13% and is currently trading at $28,430. Concerns about trust in traditional assets have been raised by the difficulties facing the traditional banking system, and it appears that more money is moving into Bitcoin. Open interest in Bitcoin futures reached $12 billion over the weekend, indicating renewed interest in the flagship cryptocurrency, according to Coinglass data.
The total number of positions in Bitcoin futures contracts that have not yet been closed or settled is referred to as “bitcoin open interest.” It is a gauge of interest in Bitcoin futures trading and market activity. When open interest is high, it indicates that investors are interested in BTC as well.
The majority of the top ten cryptocurrencies by market cap—XRP (XRP), Cardano (ADA), Ether (ETH), Solana (SOL), and Litecoin (LTC)—have posted gains of 5–20% in the past week. In contrast, the majority of altcoins are also experiencing a pump.
In the wake of unprecedented monetary and fiscal policies implemented by governments and central banks around the world, there has been a resurgence in interest in cryptocurrencies.
What is crypto’s future?
$30,000 has remained a significant obstacle for Bitcoin despite the ongoing fiscal momentum surrounding the crypto sector showing no signs of abating. However, many bulls could profit in the short term if the digital asset approached or breached this level, which could cause the cryptocurrency to fall again.
Alex Thorn, head of research at the digital asset group Galaxy, stated in an interview with Barron’s that it could be a turning point in Bitcoin history. He believes that “Bitcoin’s resilience, predictability, and relative safety stands in stark relief” as the fractionally reserved banking system teeters on the brink.
In addition, on March 20, the Crypto Fear & Greed Index achieved its highest index score of the year, a score of 66. Since November 2021, when Bitcoin reached its all-time high, these levels have not been seen. The index has a rating of 61 as of March 24, placing it squarely in the “Greed” category.
The goal of the Crypto Fear and Greed Index is to present the current “emotions and sentiments” regarding Bitcoin and the cryptocurrency market numerically, with a score of 100 representing the highest possible value. The last time the file recorded a score over 66 was on Nov. 16, 2021, only days after Bitcoin’s untouched high of $69,000.
According to Chris Bradbury, CEO of Oasis.app, a decentralized finance platform, and former lead product manager for MakerDAO, the most recent rally is connected to banking collapses and general fear in the U.S. and European banking sectors, which saw a significant loss of value in bank stocks. Added he:
“It’s unlikely that this will lead directly to a sustained rally; However, since the beginning of the year, we have begun to observe activity returning to the chain and a little bit more optimism in the markets overall.
Other people who watch the cryptocurrency industry believe that the recent pump is caused by factors that are not as favorable to the hypothesis that crypto is a safe haven and an alternative to the conventional financial system.
Molly White, a software engineer and researcher in cryptocurrencies, recently made the observation that, among other things, Bitcoin is experiencing low liquidity and may also serve as an exit for traders who are concerned about stablecoins. White argued that because USD Coin (USDC)-to-dollar off-ramps were limited early in the banking crisis, a lot of people decided to switch to other crypto assets like Bitcoin.
She went on to say that influential people stand to gain from a rise in the price of Bitcoin. Balaji Srinivasan, the former chief technology officer of Coinbase, bet $2 million that Bitcoin would reach $1 million in the next 90 days because he thought that the Fed’s new liquidity would “hyperinflate the dollar.”
“If he owns a lot of Bitcoin already, or has OTM [out of the money] long positions, $3 million (counting the two bets and the $1 million in tweet payments) would be a small price to pay if he can get BTC to tick up a few percentage points,” White proposed.
It will be interesting to see how the crypto market navigates the global economy’s macroeconomic uncertainty as we move into a future marked by increasing financial uncertainty.
