Bank Chaos Leads to Rise In Bitcoin Price
Bitcoin is on a tear right now, up 20% since the collapse of Silicon Valley Bank. Here's why.
What a week it’s been.
Since last Wednesday’s CoinSnacks issue, we’ve seen:
Silicon Valley Bank (the 16th largest bank in the US and main banking partner of the tech industry) go belly up
Signature, one of the last remaining crypto-friendly banks, collapse
The 2nd-largest stablecoin USDC de-peg
But, through it all, bitcoin has been more than resilient. In fact, it’s on a tear right now, up ~20% since the collapse of Silicon Valley Bank.
Why the sudden rip?
Well, there are three factors adding winds to bitcoin's sails at the moment.
Bitcoin As A Safe Haven
When non-crypto-pilled people talk about bitcoin and cryptocurrency, they often focus on the negatives. The hacks. The volatility. The complexity. The apparent lack of need or use cases.
But, what these people fail to recognize is how valuable a permissionless, censorship-resistant, and decentralized form of money is. A money that is, in many ways, free from the influences of government bureaucrats, Wall Street bankers, Jerome Powell’s printing machine. A money that can be used even as everything else in the world breaks down.
This is where the value of Satoshi’s invention truly comes from. In fact, when bitcoin’s first ever block (the famous genesis block) was created, Satoshi encoded a message that is eerily reminiscent today. That message read:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Seem familiar? Sure, SVB wasn’t “bailed out” like the banks of 2009, but… close enough.
And now we are seeing Satoshi’s thesis play out before our eyes.
In the wake of bank failure and uncertainty in the traditional financial system, people fled to assets that have a track record of stability and security. That means gold (up 6% this week) and evidently bitcoin.
It’s worth noting that since we started writing this letter five long years ago, there have been only a few instances where bitcoin and gold have rallied together, particularly when equities remained stagnant in an ocean of fear and uncertainty.
Going back to the initial COVID-19 pandemic market crash, another time when systemic risk suddenly hit the financial markets around the globe, bitcoin, gold, and equities all fell in unison.
…But not this time around.
Watching the safe haven narrative play out this past week adds another layer of hope and optimism to us crypto enthusiasts who believe that bitcoin's ascent is not merely a short-term phenomenon or simply a result of degen, free-money speculation.
Perhaps this past week brought a renewed sense of positivity and confidence to the crypto community.
But let’s not stop there. As we discussed earlier, there are a couple other factors that may have contributed to bitcoin’s rise…
Binance Bids A Billy
For the price of an asset to go up, there has to be more buy pressure than sell pressure. Bitcoin’s price is flying up, so who is buying it?
One answer is people fleeing to a safe asset. The other is Binance.
On Monday morning, CZ reported in a tweet that Binance converted $1 billion worth of BUSD stablecoin from its Industry Recovery Initiative fund into BTC, ETH, BNB coin, and others due to “changes in stablecoins and banks.”
Given the changes in stable coins and banks, #Binance will convert the remaining of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including #BTC, #BNB and ETH. Some fund movements will occur on-chain. Transparency.
— CZ 🔶 Binance (@cz_binance)
Mar 13, 2023
Binance first launched this “recovery” fund following the collapse of FTX in November 2022 and was started to “to help projects who are otherwise strong but in a liquidity crisis.”
That said, we don’t know for sure if CZ made this move as a direct response to the bank run and the collapse of Signature Bank. If you recall from last month, Paxos, BUSD’s owner and issuer, was hit by a lawsuit from the SEC in violation of investor protection laws. Paxos then proceeded to halt BUSD minting and end its relationship with Binance.
So, was CZ really aiming to help the markets here? Or was it just a good time to pump his own bags? We don’t know.
We also don’t know exactly how much money from Binance's fund has been converted to the coins mentioned.
Regardless, if BTC was indeed earmarked, it would have certainly added fuel to the fire.
Inflation Continues Cooling
We’ve been talking about inflation for a long time now. And for a good reason. The crypto markets move in tandem with the interest rate set by the Fed, which is determined by inflation. It’s no coincidence that the bear market began when the Fed started hiking rates.
So when the inflation numbers for February came in at 6%, down from 6.4% in January, bitcoin prices briefly spiked.
The hope for all investors, not just crypto investors, is that the Fed will reverse course soon and stop hiking rates. Until now, Fed chairman Jerome Powell has thrown cold water on that idea, saying that the fight against inflation has not been won.
But, the recent major bank failures may have thrown a wrench in Powell’s rate hiking masterplan. With the banking system now under financial pressure, it may finally be time for Powell to pivot.
We’ll just have to wait and see what happens at the next Fed meeting on the 22nd.
Not Out Of The Woods Yet
Overall, it was a great week for bitcoin and crypto in an otherwise crappy week for tech. Fortunately for all of us crypto enthusiasts, this could very well become a recurring theme, especially if the legacy financial system continues to show signs of instability.
However, we’re nowhere near out of the woods just yet.
Biden just proposed a 30% tax on cryptocurrency mining electricity. The New York Attorney General is alleging that ETH is a security. And, as we’ll discuss in Deep Dives, the regulators are making a concerted effort to destroy pro-crypto banks.
Good times are undoubtedly in crypto’s future, but the road there is still a bit murky.