Arslan Butt
The recent macro-rally in cryptocurrency prices has led to a surge in the value of digital assets, which is likely to result in cryptocurrencies outperforming traditional stocks in the financial market. The total market capitalization of all cryptocurrencies currently stands at $1.18 trillion, representing a 3.50% increase from yesterday.
Bitcoin, the top cryptocurrency by market cap, rose by nearly 3.50% and is currently trading at over $27,536. Ether, which is now ranked second, increased by about 5% to trade at $1,732. Other alternative tokens, such as Fantom, Solana, and Polkadot, also saw gains.
The global crypto market volume increased by 5.61 per cent. Bitcoin was the most trending crypto on today with a dominance of 45.21% up 0.36 per cent over the last day. The price of Ethereum was up by 6.53%#Bitcoin2023 #cryptocurrency #Ethereum #CryptoGPT #CryptoTwitter pic.twitter.com/LzSvmfQLWs
— Rahul Agarwal (@_apkarahul) March 18, 2023
The rising value of the cryptocurrency market can be attributed to the rising optimism among investors that the United States will reduce interest rates to help the struggling banking industry. And after a price spike that coincided with the banking crisis, Bitcoin has decoupled from stocks and is still rising.
To the extent that cryptocurrency prices continue to rise, they may eventually outperform the returns on offer from more conventional stock investments.
The macro-rally in cryptocurrency prices is likely to cause digital assets to outperform stocks for the following reasons.
How the Banking Crisis is Fueling the Narrative for Cryptocurrencies?
Banking firms connected to the cryptocurrency sector are facing challenging times. Silvergate, a major banking service provider for cryptocurrency startups, has filed for bankruptcy. Additionally, the federal government has taken over the failed Silicon Valley Bank and the New York-based Signature Bank.
Top executives at Silicon Valley Bank sold stock totaling several million dollars less than two weeks before the company became the largest bank failure since the 2008 financial crisis, according to federal disclosures obtained by @ABC News. https://t.co/nFqhch6NBK pic.twitter.com/ESuwkzdkmI
— ABC News (@ABC) March 18, 2023
Cathie Wood, the CEO of asset management company ARK Invest, has stated that cryptocurrencies have become a safe haven amid the ongoing financial crisis in the United States, particularly in light of the recent bank runs.
Wood attributed the failures of banks like Silicon Valley Bank (SVB) and Signature to the Federal Reserve’s weak monetary policy. Cryptocurrencies such as Bitcoin are part of a decentralized financial system and are not subject to any particular government, unlike regular banks. Supporters of crypto believe that this is the moment for cryptocurrencies to shine, given the current issues with the traditional banking system.
Crypto acted as safe haven amid SVB and Signature bank run -Cathie Wood pic.twitter.com/4jpN4oT8Xn
— Crypto Crib (@Crypto_Crib_) March 16, 2023
As a result, the prices of cryptocurrencies have skyrocketed, reaching new multimonth highs during the banking crisis.
Despite efforts to prop up floundering lenders with tens of billions of dollars, stocks declined, indicating that investors had little faith that the financial crisis had passed. The shares of numerous banks began to fall again, wiping out gains that had provided a temporary respite from the turmoil of the previous week.
Additionally, despite First Republic’s bailout, investors continue to sell shares of the struggling bank and several other local lenders, causing the market to decline.
Federal Reserve Considering Pause or Reduction of Interest Rate Hikes
The market is worried that the Federal Reserve may reduce its planned 50 basis point rate increase to strengthen its fight against ongoing inflation in the US.
Recent statistics from the US show a decreasing trend in producer inflation and declining retail sales numbers, leading to greater expectations that the Federal Reserve will only raise interest rates slightly at its meeting.
Yes because BTC is considered a risk asset and investors are risk off during FED rate hikes. The pump is telling us investors believe that these bank collapses will force the FED to pause or reduce rate hikes maybe turn on the money printer. I expected the fear from the banks,… https://t.co/hESy6sXjq2
— Phletchy (@PhletchyIRL) March 13, 2023
New concerns about a potential global banking meltdown have strengthened the argument for declining inflation, reducing the likelihood of the Fed increasing interest rates by 50 basis points. Reuters has reported that the FOMC may only raise the federal funds rate by 25 basis points at its meeting on March 22.
Any indication of interest rate reductions could cause money to flow into riskier investments, potentially attracting more investors to the cryptocurrency market.
However, if the Fed decides not to raise interest rates at its March meeting, the stock market may see a sell-off as it could imply that more banks are at risk.
BTC Unaffected by Recession: No Earnings to Lose Unlike Equities
The US economic recovery has defied predictions of an impending recession, but rising borrowing costs and inflation control measures could slow down development and potentially send the US economy into a recession. The ongoing banking crisis, which appears to be on the verge of a full-blown financial meltdown, is putting the economy’s resilience to the test.
During recessions, consumer confidence typically declines, resulting in reduced purchasing activity. This decrease in revenue and corporate earnings can negatively impact firms, raising concerns that the economy may enter a recession and, in turn, negatively affect the stock market.
In contrast, BTC and other crypto assets are not tied to the buying and selling of products. This means that BTC has no earnings to lose during a recession.
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This article was written for Business 2 Community by Arslan Butt.
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