The banking crisis has taken its toll on many financial markets around the world, but surprisingly, the crypto market has remained relatively stable during this period. Despite regulatory pressures, bitcoin and ether have managed to stay in the green, with bitcoin alone up more than 20% in the past month. While it’s difficult to determine the precise reasons behind this, there are some key factors that investors should keep an eye on.
One possible reason that cryptocurrencies have remained resilient is the current macroeconomic conditions. The Federal Reserve’s decision to raise interest rates by 25 basis points was followed by promising remarks from Chair Jerome Powell that if the banking crisis continues and infects other areas of the economy, the central bank will be forced to take a more aggressive stance. Markets have welcomed the idea of lower hikes, and cryptocurrencies have certainly benefited from this sentiment.
Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis, explains that “the persistent and spreading concerns plaguing the banking industry are showing in fed funds expectations.” Fed funds futures are significantly lower than the central bank’s year-end goal of 5.1%, with investors anticipating a rate closer to 4% by the end of 2023.
However, despite the positive macro conditions, investors should still keep their eyes on stocks. A significant sell-off could impact the crypto market, as investors may source liquidity from other areas. “The short-term pause in BTC and ETH is technically a correction, but if equities break down meaningfully, crypto will struggle to remain buoyant as investors source liquidity from everywhere,” writes the analysts from Macro Hive in a note.
Recent regulatory developments such as Coinbase’s Wells notice, Do Kwon’s arrest and indictment, and charges against SushiSwap have caused concern among some investors. However, for now, volatility and bitcoin dominance indicators seem to suggest that cryptocurrencies, especially BTC, are holding steady.
While there is no way to predict the future of cryptocurrencies with certainty, it’s worth examining some of the reasons behind their resilience during the banking crisis. One factor to consider is the fact that cryptocurrencies are decentralized and not tied to any country or government. This makes them more resilient to economic and political pressures. Additionally, since there is a finite supply of bitcoin, it may be seen as a type of “digital gold,” a store of value that investors can turn to in times of crisis.
Another possible factor is the growing interest in cryptocurrency from institutional investors. As more and more institutional investors look to diversify their portfolios, cryptocurrencies may be seen as a viable option due to their relatively low correlation with traditional assets.
In conclusion, the stability of the crypto market during the banking crisis is a topic that deserves further analysis. While it may be difficult to determine the exact reasons behind their resilience, there are some key factors that investors should consider. The positive macroeconomic conditions, the decentralization of cryptocurrencies, and the interest of institutional investors are all possible reasons why cryptocurrencies have remained in the green during this period. However, investors should remain vigilant and keep a close eye on developments in the market to stay informed and make informed decisions.
