The US banking sector has been rocked by a number of gigantic bankruptcies in recent weeks. Silicon Valley Bank and Signature Bank, among others, succumbed to the pressure of the Federal Reserve’s rate hikes. Bitcoin, meanwhile, is performing fantastically, as investors see the digital currency as a safe haven in times of economic disaster. The chart below shows how Bitcoin manifested itself as a solid protection against the turmoil within the banking sector from the beginning of March.
A plus of 23 percent
The banking crisis seems to be a lesson in the fundamentals of Bitcoin for a large group of investors. Satoshi Nakamoto launched the digital currency in 2009 as an answer to the traditional financial industry, in which banks are repeatedly bailed out with taxpayers’ money. Nakamoto was completely done with that and developed a decentralized alternative with Bitcoin that centralized rulers have nothing to say about.
Now the absolute scarcity and decentralized nature of Bitcoin turn out to be two very interesting properties for investors, because these are exactly the things that the traditional financial system cannot offer. More and more new public money is needed to maintain the traditional financial system and the next banking crisis seems only a matter of time.
It is undeniable at this point that the banking crisis of the past few weeks is perhaps the best publicity Bitcoin could wish for. After a rough 2022, the new year has been great for Bitcoin so far. More and more people are realizing that Bitcoin is here to stay and can play an important role in almost any portfolio.
The sequel of 2023
What we can expect from Bitcoin in the coming period is difficult to say. The market initially reacted negatively to last night’s Federal Reserve rate hike. Apparently, the market had expected the Federal Reserve to take more notice of the banking crisis and may already have paused the cycle of rate hikes.
That pause never came and Federal Reserve Chairman Powell even spoke about the collapse of Silicon Valley Bank as an exception during the press conference. According to Powell, the collapse of the bank was the result of poor risk management and the rest of the banking sector in America does not run the same risk.
Ultimately, only time will tell if Powell’s words are correct. In that respect, the market is in a moment right now limbo and is waiting for the next major event to teach us more about the future.