Crypto enthusiasts say a “paradigm shift” could bolster Bitcoin’s status as a safe haven asset, as the cryptocurrency gains ground in the fallout of the latest banking crisis.
Following the collapse of Silicon Valley Bank and Signature Bank, as well as the sale of Swiss banking giant Credit Suisse to its rival UBS on Sunday, the world’s first and largest cryptocurrency has reached its highest level since June last year.
At the time of writing, Bitcoin was up 17% in the past week according to data from CoinGecko, with a price tag of $28,121.
The rally has in part been attributed to expectations that the U.S. Federal Reserve may slow, if not end outright, its interest rate rises in response to the banking industry’s woes. This would in turn increase investor risk appetite, which tends to benefit risk-on assets like crypto.
But some crypto commentators have sought to frame Bitcoin’s ascent as something driven by investors hedging against risk.
Caitlin Long, founder and CEO of Custodia Bank, said in an appearance on CNBC that the banking crises had “orange-pilled” people, a term for new investors getting into Bitcoin, amid what she described as a “paradigm shift” in traditional banking.
“A lot of folks are waking up to the instability in the traditional financial system and being orange-pilled so to speak, and looking at Bitcoin for the first time,” she said. “It’s a scarce asset, just like other types of scarce assets that are insurance policies against financial system instability.”
Bitcoin’s time to shine?
The recent crisis has again raised hopes that Bitcoin could act as a “safe-haven” asset, a type of investment that attracts people who want to protect their wealth from turbulent markets.
Gold, Treasury bills, and certain currencies can all be seen as safe havens.
ARK Invest’s crypto lead Yassine Elmandrja said yesterday in a newsletter co-authored with the fund’s founder Cathie Wood that crypto has the potential to offer an alternative to classic banking.
“In the face of the U.S. and European banking crises, Bitcoin’s price appreciation suggests that lax regulatory oversight had no impact on the decentralized, transparent, and auditable crypto asset ecosystem,” he said. “Quite the opposite, Bitcoin and other crypto assets are acting like safe havens.”
CoinShares analyst James Butterfill told Decrypt yesterday that Bitcoin “hasn't stopped being one [a safe-haven asset], it's just that safe-haven assets are usually interest rate sensitive, and as the Fed looks to be backing off from its highly aggressive interest rate hikes, Bitcoin, like gold, is outperforming.”
To see if the characterization holds any water, analysts are keeping an eye on the correlation between Bitcoin and gold, which has historically been used to measure how confident investors are in the safe-haven narrative.
Kaiko’s director of research Clara Medalie told Decrypt that Bitcoin and gold had both benefited from the global banking turmoil, helping the correlation to hit its highest levels since January.
“Gold is up by over 7% this month boosted by safe-haven demand while Bitcoin surged by over 30% since March 12,” they said. “The move in crypto is mostly driven by changing expectations for the Fed's monetary policy path with markets now pricing rate cuts as early as June.”
She added that an increase in long-term Bitcoin holders, or those who have held longer than a year, also indicates that the lead cryptocurrency may indeed be serving some investors as a store of value.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.