Bitcoin Passes Stress Test Amidst Banking Crisis In The Cryptoverse

Amidst the current crisis affecting the traditional world of stocks and bonds, bitcoin is gaining recognition as a safe haven asset. Despite its volatile reputation, the cryptocurrency remains stable while banking turmoil drives other markets into recession.

In contrast to a choppy S&P 500, which has lost 1.4%, and gold, which has gained 8%, bitcoin has risen 21% this month. According to Stéphane Ouellette, CEO at digital asset investment platform FRNT Financial, this is precisely the type of environment where owning bitcoin as a hedge against inflation and bank runs makes sense.

For the time being, bitcoin has disconnected from stocks and bonds and instead rallied with gold, embodying one aspect of creator Satoshi Nakamoto’s vision – that bitcoin can offer a haven for distressed investors.

The cryptocurrency’s 30-day correlation with the S&P 500 has dropped to a negative 0.12 over the past week, indicating that the two assets are no longer moving in sync. Meanwhile, the banking sector has witnessed a significant sell-off, resulting in the loss of hundreds of billions of dollars in market value and prompting emergency measures from US regulators. In the past few weeks, both Silicon Valley Bank and crypto lender Silvergate have failed, while Credit Suisse is on the brink of collapse.

‘Return to core ethos’

While traditional stocks and bonds struggle with the current crisis, bitcoin is gaining popularity as a safe haven. Bitcoin’s price has surged by 21% this month, while the S&P 500 has declined by 1.4%, and gold has gained 8%. Stéphane Ouellette, CEO at digital asset investment platform FRNT Financial, believes that bitcoin is an ideal investment during a banking meltdown.

However, it is unclear whether bitcoin’s bullishness will last as attention shifts to the Federal Reserve’s policy meeting this week. The cryptocurrency’s recent rise has forced some short-sellers to buy back coins, but its popularity is not just due to safety concerns.

The total cryptocurrency market’s capitalization has jumped 23% to $1.1 billion since March 10, and bitcoin now controls almost 43% of the total crypto market.

Henry Elder, head of decentralized finance (DeFi) at digital asset investment manager Wave Digital Assets, believes that the crisis has fueled a return to bitcoin’s core ethos as a financial asset independent of the centralized financial system.

Bitcoin in a Bank Crisis

However, not all digital areas have been immune to the banking fallout, as Circle USD lost its 1:1 peg to the dollar, and the USDC market cap declined. Ed Hindi, Chief Investment Officer at Tyr Capital in Geneva, warns that it is too early to conclude that bitcoin is an alternative in a banking crisis, but the current rally will be viewed as a stress test for its main property as a decentralized non-sovereign asset.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.