Bitcoin's Recent Price Surge in US Economy Crisis

Bitcoin's Recent Price Surge in US Economy Crisis

written by John Murphy | March 18, 2023

Bitcoin has been touted as a safe haven asset by many investors, particularly during times of the US Economy Crisis. On March 10, bitcoin was trading at around $19,600, but after SVB announced its failure and went into FDIC receivership, the price of bitcoin increased a bit.

Within a few days, the price had reached $26,175, eventually peaking at $26,500. The reason for this sudden and significant change is primarily due to several narratives. Here are the major ones:

Bank Failures

The bank failure has raised concerns about the wider risks to the broader banking system. Credit Suisse received a 50 billion Swiss franc loan from the Swiss central bank, and 11 banks injected $30 billion into First Republic Bank to save it from potential failure.

These bank failures are not caused by bets on bitcoin or crypto but rather by the stresses caused by rising interest rates.

This narrative has led some investors to opt out of traditional banking systems and buy bitcoin instead, contributing to the recent surge in its price. As banks fail, investors may turn to bitcoin as a safer alternative, further increasing demand and driving up the price.

Stablecoin Instability

The collapse of Signature Bank caused the USD coin (USDC) to lose its dollar peg, demonstrating that even stablecoins are vulnerable to counterparty risk.

This loss of the peg raised concerns among investors, who may turn to bitcoin as a more dependable alternative with fewer counterparty risks.

Moreover, the stablecoin story involving Binance and BUSD also played a role in the recent surge in bitcoin’s price.

Binance converted $1 billion of U.S. dollar stablecoin BUSD to bitcoin and other cryptocurrencies after Coinbase officially shuttered BUSD trading on its platform.

The conversion added to the buying pressure and potentially led to a “follow the leader” effect, where investors also exchanged their BUSD for bitcoin.

Impact of U.S. Federal Reserve Policies on Bitcoin

The potential suspension of interest rate hikes from the U.S. Federal Reserve may contribute to the bitcoin narrative. The failure of these banks may be closely tied to the raising of interest rates by almost 20 times over the last year.

If the Fed suspends interest rate hikes, it could give the entire market a much-needed breather, potentially alleviating some of the stress on the banking system.

Increased Interest in Central Bank Digital Currencies (CBDCs)

Another noteworthy development in the cryptocurrency space is the increasing interest in central bank digital currencies (CBDCs).

Several countries, including China and Sweden, have already launched their own CBDCs, and others, such as the United States, are exploring the possibility of doing so.

CBDCs could potentially pose a threat to bitcoin’s status as a decentralized digital currency. Still, they could also bring more mainstream attention to the cryptocurrency space, ultimately benefiting bitcoin and other cryptocurrencies.

Bitcoin’s Recent Price Surge in US Economy Crisis:

Bitcoin’s recent surge in price is due to a combination of factors, primarily the narrative that has developed around the failure of several banks and the instability of stablecoins.

As long as US economic conditions remain unstable, it’s likely that Bitcoin will continue to be an attractive option for many investors looking to diversify their portfolios and protect their wealth.