Financial markets have been shaken by the biggest meltdown in the banking sector since the 2008 financial crisis. The collapse of two regional U.S. banks earlier this month – Silicon Valley Bank and Signature Bank – sparked a loss of confidence in the banking sector globally. In Europe, all eyes are on Credit Suisse and Sunday’s news that UBS would buy its rival in a merger engineered by the Swiss authorities. While turmoil has eased, fears about mid-sized U.S. lenders linger, with attention focused on First Republic Bank.
During this turbulence, though, the price of bitcoin surged. It jumped 40% over the course of ten days, hitting its highest levels since June last year.
Why’s it going up? No one knows for sure, but analysts reckon it’s because the banking chaos has made some investors bet that the Federal Reserve and other central banks will hit the pause button on interest rate hikes, which would boost riskier assets.
Some market-watchers said they expect bitcoin to benefit from central bank efforts to provide liquidity to keep the global financial system afloat in a reprise of bitcoin’s surge to record highs in 2021 after central banks and government launched unprecedented stimulus measures during the COVID-19 pandemic.
Another theory is that bitcoin is some kind of safe haven or store of value, whether that’s relative to other cryptocurrencies (see: stablecoin USDC’s not-so-stable price moves after Silicon Valley Bank’s collapse) or relative to the financial system as a whole – although there’s a lack of evidence to support this. As recently as January last year, Goldman Sachs said bitcoin will “most likely” take market share away from gold and this ‘digital gold’ narrative has seen some revival in recent weeks. Of course, the idea that bitcoin is a safe haven, rising when investors are cautious, did not prove to be the case last year, when it fell by 64%. By contrast: gold fell just 0.2% in 2022 overall.
Moving back to Signature, a subsidiary of New York Community Bank agreed to buy some of Signature’s assets, including 40 of its former branches. The takeover didn’t include Signature’s crypto business, Bloomberg News reported. Coinbase said it had stopped support for Signature’s digital payments platform, Signet, so Coinbase customers can no longer use it for real-time crypto-to-fiat currency transactions.
Crypto’s banking relationships are still in the spotlight. Australia’s banking regulator has started asking the country’s banks to declare any exposure to start-ups and crypto-focused ventures, following the collapse of Silicon Valley Bank, the Australian Financial Review reported.
