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Liquidity for banks fueling BTC bull run

The last two weeks of March have started as eventful as the month began, but the sentiment towards crypto is totally different now.

March 20, 2023 - The last two weeks of March have started as eventful as the month began, but the sentiment towards crypto is totally different now. In early March, the banking system crisis was just a fear, while the market was concerned about a more hawkish Fed after Powell’s testimony to the US Congress. Since then, several banks have been shut down, and not only the Fed, but other central banks around the world had to inject large amounts of liquidity into the banking system in order to prevent the crisis from getting worse. This was coupled with a “flight to quality” to Bitcoin from altcoins, propelling BTC prices to US$28k very quickly. For now, Bitcoin has not only proved its resiliency, but has also revealed its true potential to become a safe haven in times of distrust in the traditional financial system, in our view.

In the latest development of the current international banking crisis, UBS group acquired the troubled Credit Suisse for US$3.2bn with the blessing of the Swiss central bank, which will also provide US$100bn in liquidity to the bank. In the meantime, the Fed announced on Sunday that it would ensure a steady flow of the US dollars using swap lines with the ECB, the Bank of Japan, the Bank of England, the Bank of Canada and the Swiss National Bank starting on Monday. As a result, some market participants are starting to expect the Fed to not raise interest rates on March 22. However, we still believe that the odds are in favor of a 25 bps hike.

Regarding the impact of all this to the crypto market, it is clear that Bitcoin is currently the winner, with the large cryptocurrency’s dominance over the remainder of cryptoassets reaching a 9-month high, at ~45%. Moreover, the Bitcoin options market is showing stronger demand for calls versus puts, which is a bullish sign as investors are betting on a rise in prices. All in all, macro, micro and momentum are boosting BTC prices for the time being, with previous price resistances becoming new support levels.