5 Reasons Bitcoin Price Soared Amidst Bank Panic. One is the stock key.

“The recent momentum still has some upside potential,” said Alex Kuptsikevich, analyst at brokerage FxPro. “The $30,000 area has been a huge support for a year and a half until the middle of last year and now has a great opportunity to act as resistance. As we approach the $30,000 level, we should be ready for the bulls to start taking huge profits.”

Investors have been rocked by global panic about banks in recent weeks, from the failure of the Silicon Valley bank on March 10 to the emergency takeover of Credit Suisse (Ticker: CS) by rival UBS (UBS) on Sunday. Bitcoin and digital assets rose despite turmoil in the broader stock markets – which cryptocurrencies have been associated with for more than a year amid the pain of rising interest rates – as

Dow Jones Industrial Average

And

Standard & Poor’s 500

I slid down and down.

Why is bitcoin rising?

“The banking contagion is uniquely positive for cryptocurrency in multiple ways,” said Hal Press, founder of cryptocurrency hedge fund North Rock Digital.

He pointed out how he validated the original use case for cryptocurrencies as, first, a global financial alternative, and second, a protection against the deterioration of global currencies like the dollar. It also raises the prospect of a return to monetary policy that will benefit Bitcoin, and may distract regulators who seemed so intent on crushing the digital asset. Add technical market factors to the mix and you have five reasons why Bitcoin is rallying.

But not all of these reasons are equal.

“There is a different TheoRial floats in terms of the strong performance of cryptocurrencies over the past week, said Craig Erlam, an analyst at brokerage Oanda, and frankly, the majority of them are more wishful thinking than logic.

The original cryptocurrency audience is quick to point to the unique characteristics of digital assets to explain the superior performance of Bitcoin and its peers. Bitcoin was founded in the midst of the 2008-2009 financial crisis as a decentralized alternative to the traditional banking system, with its programmed monetary policy expected to be a hedge against inflation.

“This is a defining moment for Bitcoin,” said Alex Thorne, head of research at digital asset group Galaxy. “As the partially reserved banking system teeters on the brink, Bitcoin’s flexibility, predictability, and relative security stand in stark relief.”

While this may be an overstatement, there is no doubt that narratives are essential to traders and it would be a mistake to dismiss them entirely. However, it is likely that technical market factors and changing expectations about the future of monetary policy are driving Bitcoin’s price movement.

Liquidity in digital asset markets has suffered since the collapse of cryptocurrency exchange FTX last November, and the recent collapse of cryptocurrency-focused banks.

Silvergate Capital and Signature Bank have exacerbated the problem. Silvergate and Signature’s interbank transfer networks have been widely used by institutional crypto market participants, facilitating the movement of funds between investors and exchanges.

The lack of liquidity means that price movements can be amplified and widened, especially if investors who use borrowed funds to trade in the more liquid bitcoin futures market are wiped out, causing swings in the opposite direction from their positions.

Over a billion dollars of bearish bets against Bitcoin have been wiped out in the futures market in the past 10 days, According to data provider CoinglassAs prices rose from $20,000 to more than $28,000. This so-called liquidation will add upward pressure to an already bull market.

There is also a more fundamental explanation for the cryptocurrency rally. The bank stress was a result of losses on bond holdings, an unintended consequence of the Federal Reserve raising interest rates dramatically over the past year to combat decades-high inflation. Rising rates have also hit cryptocurrencies hard, as demand for risk-sensitive assets wanes when interest rates rise.

Traders now expect the Fed to be more accommodating in monetary policy as a result of the bank panic, which will act as a tailwind for Bitcoin. The outperformance of the tech-heavy Nasdaq last week is further evidence of this because technology stocks are similarly sensitive to risk.

Cryptocurrencies have proven to be among the most progressive indicators of risk sentiment, so Bitcoin’s rally may be the first expression traders see of the eventual easing of financial conditions benefiting risky assets. Understanding this trend could be key to gauging how broader equity sentiment, which has been hit by banks’ troubles, could see a shift.

“It is very unusual for such a large scale risk negative event to be so positive for a particular asset class (stocks down, cryptocurrency up) and that is why it is hard for people to wrap their heads around the current situation,” Price said. North Rock Digital.

beyond bitcoin,

ether

– the second largest cryptocurrency – rose less than 1% at $1,790 after a booming weekend that saw it rally to $1,800 from less than $1,700 on Friday. Smaller cryptocurrencies or altcoins have shown similar price action, with

Cardano

1% higher however

ribbed

3% lower as it pared its gains. Memecoins were also at an all-time high, with

Dogecoin

down less than 1% and

shiba inu

shedding 1.5%.

Write to Jack Denton at [email protected]