Bitcoin is up 60% so far this year as investors rediscover its appeal as an alternative banking system
Cryptocurrencies stood out this week as bank stocks plummeted and the global liquidity crisis rocked the stock market. For the week ended March 17, Bitcoin closed 34% higher, making it the cryptocurrency’s best week since January 2021 – marking the start of this year’s institutional bull run. Coin Metrics measures a week in crypto trading 24 hours a day, from market close on a Friday to the next. Bitcoin is now up 62% for the year. BTC.CM= YTD Mountain Bitcoin (BTC) in 2023 Ether ended the week up 23%. At one point, it was trading around $1,780, a level not seen since its pre-Ethereum merger rally in September. Ether is up 45% year-to-date. “Crypto has impressed as an unexpected banking crisis prompted a realization that Fed policy is very tight and the economy is headed for recession,” said Ed Moya, senior market analyst at Oanda. “The Fed must now decide whether it has enough information about the escalating risks spread across multiple banks. Inflation is declining, but some officials may want to make one more rate hike before pausing, and that could trigger a moment of de-risking on Wall Street.” Bitcoin vs. the Banks Bitcoin’s price surged above the key level twice, according to Coin Metrics from $25,200 to over $26,000 It hasn’t seen this level since June, days ahead of its pre-FTX bottom of around $18,000 BTC.CM= 1Y Mountain Bitcoin, the 1-year bitcoin’s outperformance amidst a crisis in the traditional banking system left some wondering if the price rallied due to a possible narrative shift.Although originally conceived as digital cash and an alternative financial system, bitcoin spent much of the last year trading like a speculative asset, falling last week he even dealt with risk markets and bank stocks amid the uncertainty surrounding Silvergate Bank However, this week following the closures of Silicon Valley Bank and Signature Bank, it appeared investors were trading them on their core value proposition, the ability to “be your own bank.” “When the financial system is cracked, it offers a use case for decentralization,” said Callie Cox, US investment strategist at eToro. “Of course, there are pros and cons to decentralized and centralized approaches, but right now investors seem to be focused on one particular angle.” However, if the original Bitcoin narrative started clicking for people this week, that doesn’t change the Fact that macro themes are still the biggest price driver. “In practice, Bitcoin is not isolated from the traditional banking system. Crypto prices rose rapidly in 2020/2021 due to the central bank’s monetary expansion, which led to capital moving 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 the price of bitcoin, and hence its purchasing power, has been and is being impacted by fiat central bank policies and banks are needed to facilitate inflows into crypto.” The Coming Week Many agree that bitcoin price bottomed in late 2022 during the FTX collapse, but so much uncertainty remains in the market and traders are finding it difficult to see what the start of a new bull run might look like would. Technically, this week’s close above $26,000 could be that signal, according to Yuya Hasegawa, an analyst at Japanese crypto firm Bitbank. However, Fairlead Strategies’ Katie Stockton expects two consecutive closes above $25,200 to form a “bullish long-term move”. Investors will continue to monitor the banking crisis and regulatory landscape over the coming week. The Federal Reserve begins its two-day policy meeting on Tuesday. “Bitcoin’s rally could continue if the Fed decides to end its tightening cycle and wait and see what happens next with the banking turmoil,” Moya said. “Traders are already pricing in rate cuts this summer, so we’ll see what happens if the Fed decides to keep its focus on inflation and nail another quarter-point hike. A pause and Bitcoin could have the potential to rally to $30,000.” Given the pulse of markets and recent Fed comments on inflation, Moya said a final hike should be the base case — and Bitcoin could again into the middle of this month’s trading range, he added.
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