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After months of inertness sparring a few short lived rallies, crypto markets went back to euphoria as Bitcoin (BTC) ripped through the resistance with a 30% gain in just three days. One might wonder if this is a new pattern since BTC made a similar move in early January 2023. At first glance, it would be no different but there was a major factor playing its hand this time. It’s the macro environment. First, crypto banks like Silvergate, Silicon Valley Bank (SVB) were forced to shut down. Second, Swiss banking giant Credit Suisse (CS) is close to defaulting as their partners had apparently refused to support and because of a bad credit line (in billions of dollars) to another financial giant Archegos which was prosecuted later for fraud and manipulation of markets.
Now, Credit Suisse is not just any normal bank, they are classified under what is known as Systemically Important Banks (SIBs). In other words, they are too big to fail. Yet the US Fed chairman has reiterated a couple of times that the interest rate hikes are going to continue for the foreseeable future. It’s not that difficult to correlate the increase in interest rates has led to the cracks in our banking system. So, considering all of these factors, markets could have called the bluff and pricing in an expected “a decrease in interest rates”. And rightly so, JP Morgan estimates that the FED’s recent emergency loan program could inject up to $2T of funds into the U.S. banking system over the next 12 months.
The Credit Suisse crisis depicts the extreme vulnerability of the global financial system with Quantitative Easing (QE) being the only way out to tackle more debt and bailouts. Inflation is the consequence of this endless QE’s and has started to affect the common man in a myriad of ways. Whether the global policy makers will put a stop to this debt-driven growth and bring a newer and sustainable model for distributed economic growth, that’s a discussion for another day. Now, let’s get back to the crypto markets.
History tells us risky assets like crypto are the first to fall under fire if the macroeconomic conditions are ultra bearish. Contrastingly, BTC’s move caught the traditional market participants by surprise. Pro-crypto investors are arguing that this is the beginning of losing in the traditional banking system while few are calling this as a huge bull trap that one must avoid at all costs.
After reaching a local high of $26,368, BTC has cooled down a bit and is currently in a short accumulation phase near $24,000. The strongest bounce among the altcoins came from the Artificial Intelligence (AI) coins like AGIX, FET. While most crypto investors are hoping for the much anticipated altcoin rallies, it is worth noting that all altcoins are trending down against the BTC pair (one alternative way is to look at the BTC dominance). Despite the global macro headwinds, the strength shown by BTC is impressive and is adding more credibility to its alternative name, a digital gold and could emerge as a truly safe haven in cyberspace.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.