Metadoro: Investors’ Fiddling While Rome Is Burning, Why Bitcoin Is Rising?

The major cryptocurrency is rising as Bitcoin prices surged above $28,000 per coin during the last week of March. This may look like fiddling while Rome is burning after the collapse of some key banks for the crypto market in the United Stated.

Banks Are Tumbling

First, Silvergate Bank (SI) was liquidated, then Silicon Valley Bank (SVB) and Signature Bank (SBNY) were shut down by the regulators.

All three banks were preferred by crypto investors, as SVB was mostly used for the financing of startups. Also, these banks were quite vulnerable to interest rate hikes, just like the crypto market. So, the rise of the Federal Reserve (Fed) fund rates to 4.75% hit their balance sharply amid improper risk management.

The raging banking crisis in the U.S. and also the tightening regulation of the crypto market in America pushed U.S.-based crypto firms offshore. Some of these investors are moving their business to Switzerland as some banks in the country recorded an increase in requests from various jurisdictions to open accounts. Some Swiss banks said they have already started onboarding these crypto clients.

Banks in the Bermuda Islands, Gibraltar, Puerto Rico, Bahamas, and the Dominican Republic are also seen to be options for crypto investors to flock to.

Archblock, an operator of the world’s fifth largest stablecoin, True USD (TUSD), moved $1 billion of reserves backing the stablecoin to Capital Union Bank in the Bahamas. Some stablecoin operators experienced serious troubles after the collapse of the three crypto-friendly banks. Circle had to stop the exchange of UDSC to the Greenback for a couple of days.

The exchange operations were resumed on March 13 after Circle announced that the $3.3 billion it had in SVB would be fully available and confirmed that USDC remains redeemable at 1-to-1 with the U.S. Dollar. Even this small break in exchange operations was used to drop the USDC exchange rate to $0.86. Large claims to withdraw money from stablecoin appeared on Monday after exchange operations were resumed, despite the tamed panic.

Meanwhile, Bitcoin trading is accelerating as prices reached $28,800, the highest level in 9 months. Decentralized exchanges (DEX) daily trading volumes surged by 250% to $25 billion. BTC whales’ transactions have been mainly valued above $1 million since November 2022.

But That’s Not All

Investors are hoping the recent banking turmoil in the United States and Europe, where large Credit Suisse is also close to a collapse after Saudi National Bank was rumored to not put any more money into the troubled financial institution, as it would exceed 10% capital limit of lending per one client, would lead to a U-turn in monetary policy.

Later the chairman of Saudi National Bank said that Credit Suisse has not asked for any kind of financial assistance recently, claiming that the recent turmoil in Swill lender shares is “unwarranted.” The National Bank of Switzerland stood up as a last resort to provide a 50 billion Swiss Francs loan to Credit Suisse.

Banking sector troubles gave investors some hope that both the Fed and the European Central Bank would be forced to launch quantitative easing again to stabilize the banking system.

However, it is too early to bet on this, as inflation is still unanchored and not even muted. Isolated banking issues could be solved by providing selective assistance, or with the help of national monetary regulators, like in the case of Credit Suisse.

The head of the Analytical Department at Metadoro, Iván Marchena, believes such uncertainty in the market may push capital towards safe-haven assets, waving all hopes for a risky asset rally.

Bitcoin prices are still gravitating to a strong resistance zone of $28,000-$30,000, but it’s interesting to see if the coin is running out of steam or if there’s more upside ahead.