Shortly after Silicon Valley Bank failed this month, the price of Bitcoin soared above $25,000, hitting a threshold the digital currency hadn’t touched since June. This week Bitcoin hit nearly $30,000, up 70 percent on the year.
Bitcoin advocates took advantage of the price surge to argue that the banking crisis was prompting investors to convert traditional currencies into digital currencies. A crypto executive acclaimed bank failures as “the end of the USD and the dawn of hyperbitcoinization.” He started a company that trades Bitcoin to investors putting up references to bank runs in your promotional materials.
But despite the fanfare, there is little evidence that the recent banking collapse has generated widespread support for Bitcoin as a financial alternative.
Instead, the rise in the price of Bitcoin was driven by a variety of financial trends that have little to do with the philosophical underpinnings of the technology, the analysts said. Reasons for the rise include growing optimism that the Federal Reserve may pause interest rate hikes, as well as growing concerns about the safety of so-called stablecoins, a type of cryptocurrency meant to maintain a price of $1.
“Is there widespread interest and growth in the space? Is it a lot of new money? asked Ed Moya, a cryptanalyst with trading firm OANDA. “It doesn’t really look like that’s happening.”
Bitcoin’s recent rise is also the result of low liquidity, a measure of how easy it is to buy and sell a digital asset without affecting its price, according to an analysis by cryptocurrency research firm Kaiko. Since the crypto market crashed last year, fewer large financial firms have been buying and selling Bitcoin, making the currency more difficult to trade. The Bitcoin price has always been volatile, but in today’s market it can rise or fall significantly after just a few trades. Last week, Bitcoin liquidity hit a 10-month low, according to Kaiko.
“It doesn’t mean that because there’s a big price move in one direction that this is a new wave of institutional money or something like that,” said Conor Ryder, a research analyst at Kaiko. “It’s more of a liquidity problem.”
Bitcoin was created after the 2008 financial crisis, which caused widespread mistrust in the banking system. Early proponents touted the new technology as a safer, long-term alternative to traditional banks and currencies.
That vision never came to fruition. Over the past 15 years, traders have largely treated Bitcoin as a speculative investment and, in some cases, as a tool for money laundering and other crimes.
But the Silicon Valley Bank implosion, and the broader crisis it unleashed, seemed to lend credence to Bitcoin’s original thesis.
“Bitcoin is a clear winner from the US banking crisis,” a column for cryptocurrency publication CoinDesk declared this month.
The Bitcoin price has risen around 40 percent since the Silicon Valley Bank crash in early March, rising from $20,000 to $28,000. But that’s still a long way from Bitcoin’s peak price of nearly $70,000 in November 2021.
And the rise has been driven in part by problems in other corners of the crypto industry. The banking crisis briefly jeopardized billions of dollars held by Circle, one of the largest stablecoin issuers, prompting investors to panic. Some cryptocurrency traders who have held their digital savings as stablecoins are now looking at other options.
“They are seeing some flows out of stablecoins into Bitcoin,” said Mr. Moya, the cryptanalyst.
The bank runs also stoked enthusiasm among crypto investors who had hoped the Federal Reserve would slow interest rate hikes to quell panic. During the last year, the increases have paralyzed the crypto market by making it more expensive to invest money in speculative assets.
In a widely shared blog post last week, Molly White, a crypto critic, noted that the price of Bitcoin began to rise at the moment the government announced that it would support Silicon Valley Bank, an intervention that some analysts interpreted as a sign that the Federal Reserve could take additional measures to calm the situation.
“If the spike was driven by fear, I would have expected it to have started during the SVB bank run,” he wrote.
Last week, the Fed announced that it would go ahead with another rate hike. The Bitcoin price has been relatively stable ever since, sitting at around $28,000.
Still, Bitcoin advocates said they sensed an opportunity to recruit new converts.
Swan Bitcoin, a financial services firm that helps people invest in Bitcoin, has experienced a wave of new customers looking to buy the digital currency as an alternative to keeping money in the bank, said Cory Klippsten, the company’s chief executive.
“They think this will be the world’s reserve currency,” Klippsten said. “This is the best time for Bitcoin marketing and Bitcoin adoption in its history.”
Cody Candee, CEO of startup Bounce, contacted Swan this month, hoping to convert a portion of his company’s funds into Bitcoin.
“Having a couple of percent in Bitcoin feels like a really great insurance policy for the US dollar, for the banking system, for the Federal Reserve, for the whole infrastructure,” he said.
But Mr. Candee was hesitant to fully commit. Bounce, which runs a network of baggage storage and package pickup locations, raised $12 million in a funding round last year. Mr. Candee said that he planned to spend only $200,000 in Bitcoin.
“If that went down substantially,” he said, “it wouldn’t have an impact on the business.”
