Bitcoin pops and continues 2023 gains as banking sector struggles with SVB failure

Bitcoin You can find more information atOther cryptocurrencies had a different reaction to Silicon Valley Bank’s collapse that traditional stocks: they actually rose.

The bitcoin pop continued the year’s generally positive growth, which added to the digital asset’s overall performance in comparison with other investments. Experts do not attribute the rally to one factor, but instead point to many factors.

SVB COLLAPSE BANK DONATED OVER $70 MILLION to BLACK LIVES MATTER GROUPS BEFORE CLOSES

Federal Deposit Insurance Corporation on Friday announced that Silicon Valley Bank, also known as SVB had failed and that it was being transferred to government hands. This caused speculation about a bank ran, as regulators also closed the Signature Bank crypto lender on Sunday.

Officials assured depositors that they would be compensated the weekend before markets open again. The Federal Government announced it would support all deposits in banks, even those that exceed $250,000. In addition, the Federal Reserve launched a new source to fund banks that may be subject to run by depositors called the Bank Term Funding Program.

Despite the fallout from SVB, bitcoin gained quickly.

Bitcoin was trading at the $25,000 mark on Wednesday following the collapse. The day after the collapse, Credit Suisse, a Swiss megabank, started flailing. Other regional U.S. bank credit ratings were also reviewed.

The cryptocurrency’s flagship reached $26,400 on Tuesday, an impressive 34% increase over Friday’s collapse of SVB. Ethereum had similar gains, reaching $1,780 earlier on Tuesday — 29% higher than Friday’s trough.

David Sacco, an instructor of finance and economics at University of New Haven’s Pompea College of Business pointed out the Washington Examiner Crypto has been performing poorly in 2022 for the majority of its past year-and a half, as it has largely followed other risk assets.

The Fed’s first hike in interest rates caused cryptocurrencies to drop dramatically. Higher rates tend to lower the value risk assets like stocks and digital tokens. This has been proven over the past year.

Investors often abandon risky investments when times are tough. They prefer safer, more stable assets of value. Bitcoin and other crypto currencies are still a new asset class. A large part of the declines last year occurred because crypto owners were selling off assets to avoid crashing, which in turn led to a chain reaction effect.

The trend is in the opposite direction of what you might think, according to bitcoin and other major cryptos. Sacco stated that cryptocurrency had been performing poorly over the past year. However, the recent exposure to risk in the banking sector may have changed that.

The fundamentals of cryptocurrency and bitcoin are also important. Advocates claim that the underlying blockchain technology provides a safe haven to investors who are wary of government ties and the banking system.

“If you think about the role that crypto could someday play, it’s sort of an alternative to government-controlled currencies and monetary systems,” Sacco stated. “I think it’s a little bit of that — here’s one reason why crypto may gain some traction someday if people start to lose confidence in banking systems.”

John Berlau is a senior fellow at the Competitive Enterprise Institute and director of finance policy. Washington Examiner Some investors may view bitcoin as a similar investment to gold. This is because it tends to rise in value when the bank sector is weak.

“It has a lot of the qualities of a precious metal, plus being in a convenient digital form, and so it’s proving to outlast the institutions that serve it … as a form of currency and with the blockchain technology it carries,” Berlau.

SVB’s collapse did not cause gold prices to rise significantly. In the days following SVB’s collapse gold futures rose to nearly 6%, growth that was still behind bitcoin and other cryptocurrencies.

Noting that bitcoin has been enjoying a very good year, it is worth noting. Bitcoin was trading at $16,500 on New Year’s Day. It was usually below $17,000 during the period following the dramatic collapse of crypto firm FTX in mid-November. Bitcoin has seen a remarkable 47% increase in value since then. Ethereum, the second largest cryptocurrency, has seen a nearly 40% increase in value over that time.

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The banking sector’s woes are something investors will closely follow. Many cryptocurrency experts believe that the current rout could continue to be a boon to bitcoin and other digital assets.

“I think to the extent that the banking crisis story continues to have legs, I suspect that is going to be good for crypto, but again, it’s a new trading pattern, so we’ll see what happens,” Sacco noted that crypto would fall if banks stocks recover and begin going back up.