Bitcoin BTC Price Stays Near $25,000 As Investors Remain Upbeat On Inflation Data, Fed Rate Hikes
Inflation fell encouragingly. Investor hopes for a less draconian central bank in the US continued.
Bitcoin embraced the more upbeat mood and continued to romp higher for much of Tuesday, rising above $26,000 at one point for the first time since last summer before retreating by more than $1,000.
The largest cryptocurrency by market cap recently traded at $24,936, up around 2% in the last 24 hours. BTC’s stable followed two consecutive days of double-digit gains linked to Binance stablecoin conversions, investors’ relief that the banking sector would not collapse, and that the Federal Reserve would reverse its steady diet of hawkish rate hikes.
On Tuesday, a small decline in the consumer price index (CPI) from 6.4% in January to 6% last month appeared to give the Fed a new basis for monetary dovishness. Even a month-on-month increase in the core inflation rate, which strips out volatile food and energy costs, included a counterweight – a small annual decline.
“Bitcoin is rising because the liquidity situation appears to be shifting rapidly,”[ads1]; Joe Ziolkowski, CEO and co-founder of digital asset insurer Relm Insurance, wrote in an email to CoinDesk. “Today’s CPI data shows that inflation is slowing.
Ziolkowski noted that the recent banking crisis involving the collapse of Signature, Silvergate and Silicon Valley banks had “triggered a federal response, injected a lot of money into the economy, and strengthened Bitcoin’s use case as a decentralized alternative to our existing banking system.”
“Investors clearly show confidence in this,” he wrote.
Ether changed hands just above $1,700, about where it stood on Monday at the same time. The second largest cryptocurrency has roughly matched BTC’s rise this week. Other major cryptos spent most of Tuesday healthy in the green before flattening out. APT, the token of layer 1 blockchain Aptos was recently up more than 14%. CRO, the original crypto of crypto exchange Crypto.com, rose around 6%. The CoinDesk Market Index, a measure of the crypto market’s overall performance, rose 2.4%.
US stock markets also took heart from the CPI report with the tech-focused Nasdaq and S&P 500 jumping 2.1% and 1.6% respectively. But as CoinDesk analyst Glenn Williams wrote in his Tuesday column, the Fed’s path forward at the March 22 meeting remains uncertain.
Reims Ziolkowski optimistically noted that “pressure is now mounting on the Federal Reserve to slow the pace of rate hikes, and perhaps even stop going altogether, given that the rapid rate hikes of the past year have clearly put significant stress on the system.”
He added: “The set-up for a lasting rally for Bitcoin and other digital assets appears to be in play.”
The crypto industry’s learning curve for banking
While depositors will be made whole, the shock waves the industry feels are no longer from the concept of lost funds, but rather the loss of industry-friendly banks that were the pillars of the sector.
As CoinDesk recently reported, Crypto companies orphaned by Silvergate’s and Signature’s downfalls, as well as the incompetence of Silicon Valley Bank, hurt the industry.
William Quigley, one of the founders of Tether, who now runs the non-fungible token (NFT) exchange WAX, highlighted to CoinDesk in an interview that the Silicon Valley Bank’s demise was one based on managerial incompetence.
Quigley says that around June 2022, management should have noticed the weakening of bonds and Treasuries and moved to sell off the portfolio and take the losses, or bring in more deposits.
“I have been chairman of the audit committee and bank auditor. I know the conversation that happens when deposits go down at an accelerated rate and our investment portfolio gets weakened to the point where we don’t have enough money to pay off depositors, he said.
The management should have been in contact with the Fed in January, and the Fed should have put the bank into some kind of supervisory liquidation then.
The problem that will emerge from this, he says, is a lack of trust. SVB was regulated by several federal and state agencies, had a clean audit opinion, and was rated investment grade by a federally licensed rating agency, making it appear like a good bank.
SVB existed because big banks usually wouldn’t give tech startups and crypto companies the time of day.
But that doesn’t mean it’s impossible.
As CoinDesk recently reported, crypto conglomerate Digital Currency Group (DCG) has had productive talks with the likes of Santander (SAN), HSBC (HSBA), Deutsche Bank and United Overseas Bank (UOB) in Singapore, as well as fintechs such as such as Revolout on introduction in its portfolio companies.
DCG will have talks with large banks, but there is no guarantee that they will be realised. These banks may end up being spooked by something, and refuse to onboard companies orphaned by Silvergate-SVB-Signature.
(DCG is the parent company of CoinDesk)
For roughly the past decade, Taiwanese crypto exchange Maicoin has had fiat on and off with Far Eastern International Bank, which would be categorized as a major bank by the Fed.
Alex Liu, CEO of Maicoin, told CoinDesk that there was really no magic to convincing banks to give the exchange fiat pipelines. He is also quick to point out that the root cause of these three banks’ demise in the US is not crypto per se.
“It involves being able to come across as not a bomb-throwing radical. It helps if you can put on a suit and talk about things like investor protection, KYC, AML and so on,” he said.
It also helps to have a physical address for your headquarters, he continued. Maicoin’s headquarters are in an office tower in downtown Taipei.
“How many crypto companies refuse to do that one thing?” he asks.
Crypto banking problems in Asia?
As all this is happening, many jurisdictions in Asia, from Hong Kong to Taiwan, are working to build a crypto licensing regime for retail traders.
They will clearly look to the US to see what happens, especially given the last six months which involved the collapse of FTX, and now three banks.
No regulator or legislator in the United States has come out and said outright, “hey, let’s just ban this thing,” Liu points out.
Regulators in Asia will take that as a cue.
Bitcoin breached $26K to nine-month high after latest inflation data. The Department of Justice and the SEC have been investigating the collapse of Silicon Valley Bank. Also, why has Meta withdrawn support for NFTs on Instagram and Facebook.