How Well Will Bitcoin Hold Up Following Bank Turmoil?

How Well Will Bitcoin Hold Up Following Bank Turmoil?

April 14, 2023

Three major financial closures happened over the course of two weeks in mid-March. The institutions that shut their doors were Signature Bank, Silicon Valley Bank, and Silvergate. Despite all this, crypto assets like bitcoin appear to be rallying.

Bitcoin Is Doing Well Despite Bank Turmoil

Many analysts are offering different thoughts on the situation, one of which is Alex Kuptsikevich, a senior market analyst at FX Pro. He mentioned in a statement:

Bitcoin faces an important test of market sentiment. During the day, we must watch closely to see if we have a clean sell-off by the hawks. If so, it’s an important signal that the recent rally was false and that the big players are still selling at better prices. Potential buyers would still be better off waiting for a fix above $23,000 to confirm a bullish reversal.

The three banks named above are now in the process of being bailed out by institutions such as the Federal Reserve and the Treasury. In a joint statement, these agencies said:

 We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Marcus Sotiriou – crypto market analyst at digital asset broker Global Block – also threw his two cents into the mix, saying:

It is clear that continued hikes risk further destabilizing the financial system, so the time in which the Fed will need to pause and then pivot could have been moved closer by the events of last week.

Some believe that this turmoil could put a damper in the Fed’s alleged plans to continue hiking interest rates throughout 2023. With so much trouble surrounding the standard banking system, higher rates could be too difficult for it to handle. That’s the good news.

The bad news is that assets like USDC – as we mentioned in a previous article – are facing problems due to the bank closures. On Twitter, USDC parent company Circle wrote:

 Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25 percent portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle and USDC continue to operate normally.

Not Everyone Will Win

While many investors and customers will be bailed out, Markus Thielen – head of research and strategy at Matrix Port – believes that not everyone will get lucky. He mentioned in an interview:

FIDC deposits are only insured up to $250,000 and when there is a bank run, depositors might lose out.

He also noted that while bitcoin may be rallying right now, transaction fees associated with bitcoin are very high.

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