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Crypto rallies as banking crisis is avoided, and in line inflation data

The US authorities’ measures to protect SVB’s depositors may have indicated a potential change in the Fed’s mind on interest rate hike decisions.

March 14, 2023 - The crypto market has been rallying since US authorities took measures to protect SVB’s depositors, avoiding a bank run contagion. This has been interpreted as a potential change in the Fed’s mind regarding the next interest hike decision. We commented a few days ago, after the Fed governor Jerome Powell testimony to US Congress, it seemed that the rate hike deceleration narrative had crumbled, giving room for a more hawkish one. We mentioned that only a significant macro data improvement could make the Fed change its mind. For now, we think that a bank run may have done the job. On top of that, February US inflation data came in line with expectations this morning, showing a deceleration in 12 months. The turmoil in the banking system coupled with macro data behaving as expected may lead the Fed to increase only 25 bps on March 22, or even keep it unchanged, although unlikely. As a result, Bitcoin prices broke the US$25k resistance, even testing the US$26k level.

Nonetheless, not only improved macro expectations fueled the Bitcoin prices surge. Many in the market are pointing out that there has been a move to BTC from USDC, and other stablecoins, based on on-chain data. The supply of USDC in exchange has increased 8% week-on-week, indicating that investors believe that Bitcoin is a safer place to be than stablecoins, at this moment, in the crypto market. Despite its volatility, Bitcoin’s decentralized, permissionless and trustless design was created exactly for moments like this, when the trust-based system shakes, being the banking system or stablecoins that ultimately depend on the traditional financial system.

Meanwhile, the crypto market still needs bridges with the traditional financial system, which has been attacked by regulators and authorities who blame crypto for the latest banking crisis in the US. Despite their efforts to choke the industry, the funds will find ways to move between crypto and fiat, being other banks under stricter rules or new technologies. In summary, the recent crypto-friendly banks collapse will hurt short term liquidity, but this will not curb the development of the crypto industry. Indeed, all this criticism, regulatory attacks and liquidity tightness are a defense mechanism against the value of the crypto industry as a substitute for the traditional system.

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