The crypto market, including Bitcoin (BTC), has shown resilience and strength in the face of a severe crisis in the global banking sector. In the past week, BTC has soared nearly 30% from a low of around $19,000 to a nine-month high of $28,262 as of Wednesday morning.
Bitcoin’s impressive performance this year comes after a sharp decline in 2022 when it lost 65% of its value following the collapse of FTX, one of the world’s largest cryptocurrency exchanges. The recent rally has surprised many investors, given that several major banks that catered to the crypto industry have also failed in the past two weeks.
Silicon Valley Bank (SVB), Signature Bank and Silvergate Capital were among the first casualties of the banking crisis that began in early March. These banks had provided loans and services to crypto startups and hedge funds, but they faced liquidity issues and regulatory scrutiny amid rising interest rates and tightening credit conditions.
The failure of these banks sent shockwaves through the financial system and sparked fears of contagion and instability. However, instead of panicking, some crypto investors saw this as an opportunity to buy more Bitcoin as an alternative to the traditional banking system.
Bitcoin as a Safe Haven Asset
One of the reasons why Bitcoin has attracted more buyers amid the banking crisis is its decentralised nature. Unlike fiat currencies that are controlled by central banks and governments, Bitcoin operates independently on a peer-to-peer network that does not rely on intermediaries or intermediaries.
This means that Bitcoin is not subject to monetary or fiscal policies that can devalue or inflate currencies. It also means that Bitcoin holders have full custody and ownership of their assets without having to trust third parties such as banks or exchanges.
Some analysts have argued that Bitcoin was created precisely for situations like this when the current system shows signs of weakness and fragility. Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno told CNBC:
“If one looks at the history of Bitcoin and why it was created in the first place, it was precisely for events like this where the current system shows signs of weakness and hence owning an uncorrelated asset helps.”
Another reason why Bitcoin has gained more popularity amid the banking crisis is its digital and scarce nature. Bitcoin is often compared to gold as a store of value and a hedge against inflation and currency devaluation. However, unlike gold, Bitcoin is easier to store, transfer and verify online.
Bitcoin also has a fixed supply of 21 million coins that cannot be increased or manipulated by anyone. This makes it more attractive than gold, which has an uncertain supply and can be confiscated or seized by authorities.
Since the beginning of the year, Bitcoin has outperformed both stocks and gold in terms of returns. While gold has only added around 9% to its value this year, Bitcoin has gained more than 70% of its value since January. Even during the ongoing banking crisis, Bitcoin remains the best-performing asset among other cryptocurrencies.
Bitcoin’s Future Prospects
As the banking crisis continues to unfold worldwide, it will be interesting to see how Bitcoin’s price action evolves as more people consider owning Bitcoin as a viable alternative to the current financial system.
However, Bitcoin is not without risks or challenges. It still faces regulatory uncertainty, technical issues, security breaches and volatility. It also competes with other cryptocurrencies that offer different features and advantages.
Therefore, investors should be cautious and do their own research before buying or selling Bitcoin. While it may offer some benefits over traditional assets in times of crisis, it may also pose some drawbacks in times of stability or growth.
