Cryptocurrencies stood out this week as bank shares tumbled and the global liquidity crisis rocked the stock market. For the week ending March 17, bitcoin finished higher by 34%, making it the cryptocurrency’s best week since January 2021 — which marked the start of the institution-led bull run that year. Coin Metrics measures a week in crypto, which trades 24 hours a day, from the stock market close one Friday to the next. Bitcoin is now up 62% for the year. BTC.CM= YTD mountain Bitcoin (BTC) in 2023 Ether ended the week higher by 23%. At one point it traded at about $1,780, a level not seen since its rally ahead of the Ethereum merge in September. Ether is up 45% year-to-date. “Crypto has impressed as an unexpected banking crisis has triggered a realization that Fed policy is very restrictive and that the economy is headed towards a recession,” said Ed Moya, senior market analyst at Oanda. “The Fed now has to decide if they have enough information about the escalating risks that are spreading across several banks. Inflation is heading lower, but some officials might want to deliver one more rate hike before pausing and that could trigger a de-risking moment on Wall Street.” Bitcoin versus the banks The price of bitcoin twice rose above the key $25,200 level to more than $26,000, according to Coin Metrics. It hasn’t seen that level since June, days before its pre-FTX bottom of about $18,000. BTC.CM= 1Y mountain Bitcoin, 1-year Bitcoin’s outperformance amid a crisis in the traditional banking system had some wondering if the price rallied on a potential narrative shift. Though bitcoin was initially designed to be digital cash and an alternative financial system, it spent much of last year trading like a speculative asset. Last week, it even fell with risk markets and bank stocks amid the uncertainty surrounding Silvergate Bank. That shifted this week however, following the closures of Silicon Valley Bank and Signature Bank, giving the appearance that investors were trading it on its core value proposition, the ability to “be your own bank.” “When the financial system shows cracks, it provides a use case for decentralization,” said Callie Cox, U.S. investment strategist at eToro. “Of course, there are pros and cons to decentralized and centralized approaches, but for now, investors seem to be focusing on one specific angle.” However, if the original bitcoin narrative began to click for people this week, it doesn’t change the fact that macro themes are still the biggest driver of price. “In practice, bitcoin isn’t isolated from the traditional banking system. Crypto prices rose quickly in 2020/2021 due to central bank monetary expansion, causing capital to move from the traditional fiat banking world to the crypto world,” Sheena Shah, an analyst at Morgan Stanley, said in a note this week. “So our conclusion is that the Bitcoin network can operate without banks but that bitcoin’s price, and thus its purchasing power, has been and continues to be influenced by fiat central bank policy and needs banks to facilitate flows into crypto.” The week ahead Many agree the bitcoin price bottomed in late 2022 during the collapse of FTX, but so much uncertainty remains in the market and traders have been finding it difficult to identify what the start of a new bull run would look like. From a technical perspective, this week’s close above $26,000 could be that signal, according to Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank. Fairlead Strategies’ Katie Stockton, however, is looking for two consecutive closes above $25,200 for the formation of a “bullish long-term development.” Investors will continue to monitor the banking crisis and the regulatory landscape in the week ahead. On Tuesday the Federal Reserve will begin its two-day policy meeting. “Bitcoin’s rally could remain in place if the Fed opts to end its tightening cycle and wait and see what happens next with banking turmoil,” Moya said. “Traders are pricing in rate cuts this summer already, so we will see what happens if the Fed opts to remain focused on inflation and deliver another quarter-point rise. A pause and Bitcoin could have the potential to make a run towards the $30,000 level.” Given the pulse of markets and recent Fed comments on inflation, Moya said one last hike should be the base case – and that could bring bitcoin back to the middle of this month’s trading range, he added.
