The price of Bitcoin (BTC) has been on a wild ride over the past month, thanks to the rapidly unfolding banking crisis and government efforts to limit the fallout in both Europe and the US.
Three banks have failed so far in the US, prompting the Federal Reserve to launch an emergency lending program to stem the panic. A similar picture is evident in Europe, with Swiss authorities forced to intervene to rescue Swiss bank Credit Suisse from bankruptcy.
Silvergate Bank, which was deeply enmeshed in the world of cryptocurrency, closed its crypto payments platform in early March and announced its liquidation a few days later. This was soon followed by startup lender Silicon Valley Bank (SVB) announcing its inability to meet obligations and the liquidation of Signature Bank.
This triggered a fall of over 10% in the price of Bitcoin in just a week. However, the price has since increased by over 15% with confidence restored after the US government’s undertaking to cover the debts of SVB and Signature Bank.
Ethereum (ETH), the world’s second-largest cryptocurrency by market capitalisation, has followed a similar trajectory over the last month, and is currently trading at its highest level since November 2022.
Why is Bitcoin Going Up Today?
Bitcoin’s price dipped earlier this week on the news that the US Commodity Futures Trading Commission (CFTC) had filed a lawsuit against Binance for knowingly offering unregistered crypto derivatives,
However, Bitcoin has since shaken off this news to recover strongly, posting a gain of more than 5% at one point today alone.
With question marks remaining over the stability of the banking sector, Bitcoin has benefitted from net inflows into cryptocurrency from investors looking for a decentralised currency.
Investors have also been encouraged by the possible reversal of the Fed’s interest rate hikes, which puts downward pressure on risky assets such as cryptocurrency.
USDC Coin Regains Its Peg
In other important crypto news, Circle’s USDC coin regained its dollar peg after losing the important benchmark following Silicon Valley Bank’s announcement.
The fear among investors was that Circle kept a portion of its funds invested in the FDIC-backed bank. Afraid that the stablecoin issuer may not have the reserves to fund its obligations any longer, there was a slight run on the coin.
As USDC fell to around $0.86 per coin, crypto exchange Coinbase even halted trading on the coin to try and stem the losses while maintaining an all-important $1.00 peg.
However, following the announcement by U.S. authorities that the FDIC would be backing all of Silicon Valley Bank’s obligations, USDC regained its peg.
What Does Bitcoin’s Bounce Mean for Investors?
The big question facing investors is whether this is yet another sign that Bitcoin has reached the bottom or if the refuge is merely a dead cat bounce—where prices temporarily rebound amid a longer-term negative trend, only to resume the downward fall after that.
While the bounce has provided a welcome reprieve, the reality is that we are in an unprecedented territory regarding the geopolitical climate, rampant inflation and the Fed’s stance on interest rates.
Anyone familiar with the industry knows that even at the best of times, predicting the short-term price action of digital assets is near impossible. That holds particularly true in this market environment.
