But, through it all, bitcoin has been more than resilient. In fact, it’s on a tear right now, up ~20% since the collapse of Silicon Valley Bank.
Why the sudden rip?
Well, there are three factors adding winds to bitcoin's sails at the moment.
Bitcoin As A Safe Haven When non-crypto-pilled people talk about bitcoin and cryptocurrency, they often focus on the negatives. The hacks. The volatility. The complexity. The apparent lack of need or use cases.
But, what these people fail to recognize is how valuable a permissionless, censorship-resistant, and decentralized form of money is. A money that is, in many ways, free from the influences of government bureaucrats, Wall Street bankers, Jerome Powell’s printing machine. A money that can be used even as everything else in the world breaks down.
This is where the value of Satoshi’s invention truly comes from. In fact, when bitcoin’s first ever block (the famous genesis block) was created, Satoshi encoded a message that is eerily reminiscent today. That message read:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Satoshi Nakamoto
Seem familiar? Sure, SVB wasn’t “bailed out” like the banks of 2009, but… close enough.
And now we are seeing Satoshi’s thesis play out before our eyes.
In the wake of bank failure and uncertainty in the traditional financial system, people fled to assets that have a track record of stability and security. That means gold (up 6% this week) and evidently bitcoin.
It’s worth noting that since we started writing this letter five long years ago, there have been only a few instances where bitcoin and gold have rallied together, particularly when equities remained stagnant in an ocean of fear and uncertainty.
Going back to the initial COVID-19 pandemic market crash, another time when systemic risk suddenly hit the financial markets around the globe, bitcoin, gold, and equities all fell in unison.
…But not this time around.
Watching the safe haven narrative play out this past week adds another layer of hope and optimism to us crypto enthusiasts who believe that bitcoin's ascent is not merely a short-term phenomenon or simply a result of degen, free-money speculation.
Perhaps this past week brought a renewed sense of positivity and confidence to the crypto community.
But let’s not stop there. As we discussed earlier, there are a couple other factors that may have contributed to bitcoin’s rise…
Binance Bids A Billy For the price of an asset to go up, there has to be more buy pressure than sell pressure. Bitcoin’s price is flying up, so who is buying it?
One answer is people fleeing to a safe asset. The other is Binance.
On Monday morning, CZ reported in a tweet that Binance converted $1 billion worth of BUSD stablecoin from its Industry Recovery Initiative fund into BTC, ETH, BNB coin, and others due to “changes in stablecoins and banks.”
Binance first launched this “recovery” fund following the collapse of FTX in November 2022 and was started to “to help projects who are otherwise strong but in a liquidity crisis.”
That said, we don’t know for sure if CZ made this move as a direct response to the bank run and the collapse of Signature Bank. If you recall from last month, Paxos, BUSD’s owner and issuer, was hit by a lawsuit from the SEC in violation of investor protection laws. Paxos then proceeded to halt BUSD minting and end its relationship with Binance.
So, was CZ really aiming to help the markets here? Or was it just a good time to pump his own bags? We don’t know.
We also don’t know exactly how much money from Binance's fund has been converted to the coins mentioned.
Regardless, if BTC was indeed earmarked, it would have certainly added fuel to the fire.
Inflation Continues Cooling We’ve been talking about inflation for a long time now. And for a good reason. The crypto markets move in tandem with the interest rate set by the Fed, which is determined by inflation. It’s no coincidence that the bear market began when the Fed started hiking rates.
So when the inflation numbers for February came in at 6%, down from 6.4% in January, bitcoin prices briefly spiked.
The hope for all investors, not just crypto investors, is that the Fed will reverse course soon and stop hiking rates. Until now, Fed chairman Jerome Powell has thrown cold water on that idea, saying that the fight against inflation has not been won.
But, the recent major bank failures may have thrown a wrench in Powell’s rate hiking masterplan. With the banking system now under financial pressure, it may finally be time for Powell to pivot.
We’ll just have to wait and see what happens at the next Fed meeting on the 22nd.
Not Out Of The Woods Yet Overall, it was a great week for bitcoin and crypto in an otherwise crappy week for tech. Fortunately for all of us crypto enthusiasts, this could very well become a recurring theme, especially if the legacy financial system continues to show signs of instability.
However, we’re nowhere near out of the woods just yet.
All the crypto-friendly banks are pretty much gone, now what?
Last week, we wrote about Silvergate’s demise and the opportunity it opened for Signature Bank. In it, we talked about why we were optimistic about Signature’s prospects:
“The bank is much larger than Silvergate, boasting ~$115 billion in total assets versus Silvergate’s ~$11 billion…
Despite these seemingly positive characteristics, state regulators officially shut down and seized Signature on Sunday.
So, for those keeping score at home, there have now been three crypto-friendly banks (Silvergate, Signature, and Silicon Valley Bank) that have collapsed in just the last week.
A Conspiracy Afoot? The official stated reason for Signature’s seizure was to protect depositors and the U.S. financial system following $10 billion in withdrawals on Friday.
But, something about this smells fishy.
To begin, Signature executives had no idea a seizure was coming. The withdrawal rush had slowed by Sunday, and they believed the situation had stabilized. It’s not like this was a bank on the verge of collapse, as Silvergate and Silicon Valley Bank were. Their losses were nowhere near fatal. It wasn’t even in as dire a straits as First Republic Bank, which was never seized by the Feds and has since weathered the storm.
So, what gives?
Unfortunately, it looks like the regulators might be making an example out of Signature. As Signature board member and former congressman Barney Frank (yep, the “Frank” from the Dodd-Frank Act) put it:
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message”.
Barney Frank
Naturally, the regulators refute this allegation. They say the seizure was due to a loss of confidence in the bank’s leadership and failure to provide consistent and reliable data.
Is that claim really believable, though, when even the FDIC was surprised about the decision to close Signature? Or is it more likely that this is the latest development in a string of moves to strangle crypto in the US, which crypto venture capitalist Nic Carter calls Operation Choke Point 2.0, named after the infamous 2013 effort to marginalize specific legal industries through banking pressures.
Who knows at this point. What we do know is that crypto banking just got a whole lot more difficult in the US.
Where To Bank Now? There very well could come the day when crypto startups operate purely on-chain, free from the traditional banking system.
But that day is not here yet. Crypto companies still need to be able to move into and out of fiat. The problem is that finding a bank that deals with crypto companies is difficult, and even more so now that three of the more crypto-friendly banks are lying 6 feet under.
Thankfully, the crypto industry isn’t fully out of banking options.
According to DCG, Santander, HSBC, Deutsche Bank, BankProv, Bridge Bank, Mercury, Multis, and Series Financial are all still willing to bank crypto companies.
What will be more challenging to replace are the Silvergate Exchange Network (SEN) and SigNet. Both were key services for allowing crypto institutions and businesses to move money on and off-chain, and they don’t have an obvious successor.
Without these services, or something similar, it’s possible that liquidity on-chain gets a lot tighter, making it more difficult for institutions and clients to make trades.
Left Behind While the US shoots itself in the foot regarding crypto innovation, other countries and jurisdictions are making a bid for crypto-focused business.
Hong Kong, UAE, Saudi Arabia, hell, even the UK are attempting to attract crypto companies to their shores.
Crypto is going to exist no matter what anyone does to try to stop it. Users simply will find a way. If US regulators truly want to protect consumers, they will work with the industry rather than force it into the hands of unfriendly and less sophisticated locales.
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Take A Look At This Chart…
This curve shows how innovations get adopted.
Essentially, once roughly 15% of the population embraces a new technology, it quickly gains much wider acceptance until it's just about everywhere. And whether you're talking about cars, microwaves or the internet… this pattern has been remarkably consistent over the last 120 years.
After all, bitcoin and other cryptos are just on the cusp of that 10% to 15% adoption window. Which is why for every Warren Buffett saying bitcoin will go to zero, there's a Cathie Wood saying it can go to a million.
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