- Following the latest inflation data, BTC soared to a 9-month high above $26,500 before falling.
- The 18th-largest bank in the country(USA), Silicon Valley Bank(SVB), failed.
- Even crypto has been shaken up by the fall of SVB. Over the weekend, USDC lost its peg to the dollar. The signature bank was also a partner of Circle, along with SVB.
- After falling as low as 88 cents, USDC started to climb up over the weekend and is back above 99 cents.
- In the middle of the US financial system’s collapse, Bitcoin has managed to pull off a remarkably impressive one-day rally. Despite falling on the Thursday and Friday of last week, Bitcoin is back above $24,000.
- Instead of 50 bps, the Fed may increase rates by 25 bps.
The banking industry’s ongoing recovery from a near-disaster, along with mildly encouraging inflation data, helped bitcoin rise above $26,000 on Tuesday for the first time in nine months before giving back some of its gains. Following the release of the Consumer Price Index (CPI) for February by the Bureau of Labor Statistics, which showed inflation dropping from 6.4% in January to 6%, bitcoin saw gains. Contrary to expectations, the core rate of inflation—which excludes costs for food and energy—rose by 0.5% in February, a slight increase from January, even though the core rate was slightly lower than in January on a year-over-year basis.
BTC’s increase this week came after the U.S. banking and finance regulators decided to protect depositors of the defunct Silicon Valley (SIVB) and Signature Bank (SBNY), and it was driven by investor optimism that the U.S. central bank would change its hawkish inflation forecast in response to worries that its mistakes had led to the almost banking meltdown. Strong employment numbers had caused the Fed to become more hawkish prior to SVB; the collapse of SVB may have provided a real catalyst for a pivot.
Fed rate hike probability plummets after the SVB failure:
A blow to cryptocurrency was dealt by the closure of Silvergate bank last week. The failure of this cryptocurrency bank, though, pales in comparison to Silicon Valley Bank’s demise. SVB has now been formally taken over by the FDIC, which has guaranteed that all depositors will be compensated. After the bank attempted to raise capital, a run on SVB’s deposits started. People started to panic, and depositors rushed to withdraw their money. The Federal Reserve is expected to slow or stop raising interest rates to combat inflation after U.S. authorities took action to lessen the effects of Silicon Valley Bank’s abrupt collapse on Monday, according to market speculation. Even the cryptocurrency world has been rocked by the collapse of SVB, with USDC losing its peg over the weekend. Both SVB and Signature Bank were associates of Circle.
The Federal Reserve (Fed) announced on Sunday that it would make additional funding available through a new Bank Term Funding Program, which would provide depository institutions with loans for up to one year, backed by Treasury securities and other assets these institutions hold. Currently, the market is pricing in a nearly 80%+ chance of the Fed maintaining its current rate and a 20% chance of a 25 basis point increase. Before the SVB collapse, however, the market had a 60% chance of a 50 basis point increase priced in.
Bitcoin Price Analysis:
Bitcoin has pulled off a remarkably impressive one-day rally while the US financial system is collapsing. Bitcoin is back above $24,000 despite the fact that it did decline on Thursday and Friday. Just at $25,000, Bitcoin hit a regional high. This was a crucial area of resistance because it was where BTC peaked during its most recent relief rally and BTC repeatedly failed to break it. $27k would be in sight as a return to levels from last Q2 if the $25k current resistance area around 2 were to break out. The first area of support on the downside is $20k, so keep an eye on that area. The recent gains would be undermined by a break lower from that point, and new volatility would likely result. The bulls will probably maintain control as long as BTC can maintain $18,000 as the next crucial level of support.
Concluding Thoughts:
The increased likelihood of a Fed pause is driving the price of risky assets like bitcoin higher. The Fed will likely need to start up the printing press again at some point, whether it’s due to failing banks, declining home prices, or a recession. Already exist in other nations. In this scenario, bitcoin is one of the best assets to hold, if not the best. Even if the Fed is lowering rates, earnings can decline and some industries may perform poorly during a recession. Just observe how bank stock prices are falling at the moment. Bitcoin, on the other hand, is immune to this and offers a different strategy for profiting from a Fed pivot or pause. The most recent rally despite the volatility in the financial markets should be encouraging for investors as BTC is currently trading close to its highest level since last August. After a particularly difficult 2022, the higher price level of BTC ultimately helps to restore trust in the cryptocurrency.
