Bitcoin hits nine-month high as traders turn away from banks

Bitcoin hit a nine-month high on Friday as crypto traders turned funds away from banks and warmed to rapidly changing interest rate expectations.

The dollar-denominated price of the original and largest crypto coin is up more than 30 percent this week to over $27,000, the highest level since the crisis of confidence that swept the market last summer. The second largest token Ethereumhas increased by a fifth over the same period.

After a week of acute turmoil for the global banking industry on both sides of the Atlantic, buyers have emerged as investors fret over the valuations of smaller banks’ bond portfolios and business models.

The US government and big banks stepped in to stabilize the system, while the Swiss central bank provided a $54 billion emergency freeze for lender Credit Suisse. The uncertainty has led to speculation that the Federal Reserve and European Central Bank will put their aggressive rate hike plans on hold to stem the ongoing inflation to contain

Over the past 18 months, Bitcoin’s price, once touted as a hedge against inflation, has often correlated with traditional stock indices like the S&P 500 and Nasdaq Composite and has been sensitive to traders’ interest rate expectations.

Traders point out that when investors are scared of crypto prices, they are reallocating funds to bank deposits and stablecoins. When there are concerns about banks, they quickly move on to buying tokens.

“Fears over the stability of the banking system along with falling real interest rates are creating a good environment for Bitcoin to rally as it is viewed by some investors as a hedge against systemic risk,” said Ilan Solot, co-head of digital assets at London brokerage Marex.

The market rally was also bolstered by assurances from the US authorities that deposits at the failed Silicon Valley Bank would be protected.

Circle, operator of the second largest stablecoin The crypto market’s USDC, admitted that $3.3 billion was trapped in SVB, triggering a temporary drop in the stablecoin’s value to 88 cents.

Stablecoins act as a conduit between crypto and government money and are designed to maintain their value at one-to-one against the dollar at all times.

Despite a near-term rebound in digital assets, the turmoil in the banking sector has cast doubt on the long-term presence of the crypto industry in the US.

Along with Silvergate and Signature, SVB was among a triad of crypto-friendly banks that have seen their demise over the past few days. Their failures have sparked fears among industry supporters that the US is debanking the crypto industry.

Republican Congressman Tom Emmer wrote a letter to the Federal Deposit Insurance Corporation on Wednesday, arguing that the regulator was deliberately trying to limit the banking industry’s exposure to crypto markets.

“Many people already understand that the industry is moving away from the United States, so in many ways America’s crypto crackdown has been priced in by the market,” Solot said.