Bitcoin is up 50% so far this year, even as the big crypto-centric banks have gone under, beating the big indices in stocks and commodities.
On Jan. 1, Bitcoin started trading at a little more than $16,500. On Wednesday, it was hovering near $25,000, thanks to a rally that began Sunday. The recent rally was a bit surprising for some, given that two of the biggest lenders in the cryptocurrency space, Silvergate Capital and Signature Bank, had closed. Industry experts said that bitcoin has been helped by anticipation for the U.S. Federal Reserve’s slower pace at raising interest rates. Moreover, there is an ideological gap between Bitcoin and the rest of the crypto space.
On Jan. 1, bitcoin started trading at a little more than $16,500. On Wednesday, it was hovering near $25,000, thanks to a rally that began Sunday. The surge in prices this year comes on the heels of Bitcoins 65% collapse in 2022, following a series of large projects and hedge funds going bankrupt, liquidity issues, and the collapse of FTX, one of the largest cryptocurrency exchanges in the world. The recent surge has been a bit surprising given the closings of Silvergate Capital and Signature Bank, two of the biggest lenders in the cryptocurrency sector. And Silicon Valley Bank, considered a backbone for the tech start-up sector, has failed too.
While the failures of Silvergate, Signature Bank, and SVB sent shockwaves across financial markets, the uptick in bitcoin may be fuelled by these same failures.
The collapse of the bank comes on the heels of one year of rising interest rates by the US Federal Reserve. SVBs problem was it had to sell assets, mostly Treasury bonds, to strengthen its balance sheet because depositors were pulling money out. But it sold these assets at significant losses, as rising interest rates drove down Treasury prices.
Some analysts suggested that the strain on the financial sector might have reduced the pace of rate increases by the Federal Reserve, which might help riskier assets like stocks and Bitcoin. That comes even after Federal Reserve Chairman Jerome Powell said days before the banking crash rates were likely higher than policymakers had anticipated.
