Bitcoin (BTC) and Ethereum (ETH) prices are on the rise. Are investors using cryptocurrencies as safe harbour in the banking storm? The demise of Silicon Valley Bank (SVB), Signature Bank and Silvergate continue causing a ripple effect across both the traditional and digital financial markets in Australia and abroad. Some crypto proponents suggest that SVB’s failure might well be doing the digital asset industry a favour.
Since the fallout, Bitcoin and Ethereum have seen price gains, with Bitcoin trading for AU$37,493 on Wednesday morning, increasing by more than 22% since Saturday.
Trading activity jumps in Australia
According to Australian crypto platform Swyftx, trading activity among the country’s high-volume crypto traders returned to pre-FTX levels in February, after the rally in global markets. So was the crypto market on the rise even before the bank collapses?
February saw a 38.9% month-on-month increase in trading volumes by Swyftx’s top traders (considered to be trades worth $20,000 or more). This is alongside an increase in trading in alt coins like Polygon and XRP.
Swyftx head of commercial operations, Tommy Honan said, “Since the start of the year we’ve seen a big divergence between the Aussie and global cryptocurrency markets. Australia has a large number of early crypto adopters compared to most other countries. A lot of Aussie digital asset users self-report high levels of crypto understanding and we think we are seeing that experience represented in these figures.”
Is traditional banking flawed?
If investors are worried about the traditional banking system, will this lead to more crypto activity?
“The recent bank collapses have further emphasised that the traditional banking system is flawed and that people are lacking trust in it,” shared Nawaz Ahmed, founder of New Zealand-based VC firm, GD1.
Ahmed says the realisation that banks are also not safe in regards to holding someone’s money is driving people to Bitcoin and crypto. “Bitcoin was created to be a solution for the lack of trust in the traditional banking system, and these events have really demonstrated to the public the need for self-sovereign currency which you can have more control over.
“The fact that a bank as large and reputed as SVB can go down so quickly proves that there is a problem in the way that the current banking system works. I think over time more and more people will come to realise the importance of crypto and decentralised finance when it comes to having control and access to your capital.”
Volatility, Bitcoin price, traditional banks
Ben Simpson, Founder of Collective Shift, an Australian crypto education platform, says that while crypto price action is on the incline, he’s still concerned about volatility continuing in the short term.
“I’d be extremely concerned if all other US banks stopped servicing crypto companies. Whilst Silvergate and Signature Banks serviced the vast majority of US crypto companies — there are other options still available, including Cross River Bank, Customers Bank, Sutton Bank and First Foundation Bank. Major banks including JPMorgan and BNY Mellon continue to bank more established crypto companies such as Circle and Coinbase.”
Simpson says that crypto prices are pumping because the bank collapses have changed the market’s expectations over interest-rate decisions. “There’s now a 21% chance the Fed will hold rates steady, an unheard-of decision just a week ago. Generally, the lower the rates are, the more appetite there is for risk-on assets such as cryptocurrencies.”
The founder of Collective Shift thinks that crypto price action will be relatively boring until the end of the year, with short periods of volatility.
“I’m sticking with our prediction that BTC will trade between $20,000 and $30,000 for the vast majority of the year. I expect the crypto market to outperform in 2024. Uncannily, this will yet again align with BTC’s halving cycle. I believe too many investors misattribute the halving cycle as the determinant of BTC prices. In my opinion, global liquidity and monetary policy affect the price of BTC more than the halving.”
Will there be a domino effect?
Lawyer Jamie Nuich is the Principal at Square Pegs Legal, Blockchain Law specialists. She says that the recent collapses of Silvergate, Signature Bank and SVB happened in such short succession, like the falling of dominoes.
“That most likely caused panic in the crypto retail market, and motivated retail investors to seek safe harbour in crypto. Will the crypto market cap continue to climb or even soar? Maybe it’ll climb a little. Retail crypto has been in a bear market for the last year. These recent events have ‘stirred the waters’ to bring the fish out from hiding. But there’s so much ongoing volatility and financial insecurity in this space, that anything could happen at this point now to stir up those waters anytime over and over.”
Nuich does not think that the decision to bail out depositors has increased the price of Ethereum and Bitcoin. “But I do think this happened because the retail market has been primed to anticipate a repeat of the 2008 financial crash (or worse) for years now.”
Ethereum and Bitcoin vs recession coming
Nuich says that prominent economists and analysts have long been predicting the collapse of financial institutions and real estate markets, a global recession and even a great depression.
“The recent collapses of Silvergate, Signature Bank and SVB have likely ‘triggered’ retail users into remembering the 2008 collapse. Such financial collapses were never supposed to happen again. But they did. So, the decision of the US Federal Reserve and Yellen to pivot to pay out depositors likely won’t ease the financial insecurities of the retail markets. Rather, the collapses themselves have triggered those deeper financial insecurities to stir movement in the markets.”
Nuich thinks that it will take up to 12 months for the ripple effects to emerge in Australia.
“In the immediate term, retail investors might retreat to crypto as a safe harbor, while institutional investors will continue to exit. In the long term, I think we’ll continue to see the pendulum swing between a crisis of confidence in institutions and a crisis of confidence in crypto.”
Will the Bitcoin and Ethereum price continue to rise amongst the crisis in traditional banking? It may be the end of a long, cold crypto winter.