The crypto market has seen some turbulent times recently, with the banking crisis causing a stir among investors. However, Bitcoin’s store of value narrative seems to be on full display as crypto prices stay green. In this article, we’ll dive deeper into the reasons behind this rally and what it means for the future of the digital asset industry.
Introduction
The recent banking crisis caused a lot of uncertainty in the crypto market. Circle’s USDC stablecoin had been knocked off its peg due to exposure to Silicon Valley Bank. However, the market has rebounded and crypto prices are staying green. Bitcoin, in particular, has seen a significant rally of nearly 8.5% in the last 24 hours, leaving other cryptocurrencies in its digital dust.
Banking Crisis and Stablecoins
Stablecoins are supposed to be the safe haven asset of crypto. They came into the spotlight during the Covid crypto crash of March 2020, and the subsequent bull market, making them a key part of the ecosystem. However, the recent banking crisis has caused some concerns among investors.
The shutdown of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank has caused headaches for the industry in the short-term. Many crypto companies are searching for new banking partners, uncertain if larger entities will even want to touch crypto companies anytime soon.
Bitcoin’s Rally and On-Chain Data
Bitcoin’s store of value narrative seems to be on full display as the crypto rallies. On-chain data suggests that this rally is fueled by a flight from USDC into Bitcoin. Data from Nansen shows that the supply of USDC on exchanges has increased over the last few days. Total supply on exchanges is up 8% compared with a week ago. Notably, the largest deposit of USDC in the last 24 hours was 18.3 million, a 41% increase from the prior record of 13 million.
Flight from USDC into Bitcoin
The same cannot be said for USDT, as there has been a 5.7% decline of USDT on exchanges from the last week, which translates into a negative netflow of 96.6 million. Bitcoin is rallying as financial stability risks sent Treasury yields crashing. In a scramble to avoid another massive bank run, Federal regulators stepped in as some Americans grew skeptical of traditional banking.
Gold as a Safe Haven
Gold has always been a safe haven in times of uncertainty, and it seems to be continuing that trend. As treasury yields surge and there is too much headline risk, gold is breaking out as volatility picks up. The 2-year Treasury yield is down 49 basis points to 4.095%, which means we are almost down a full point since last week. The entire Treasury curve is now below Fed’s target, and that normally means a recession is coming.
Small Banks to Fill the Crypto Gap?
The crypto ecosystem was built on the belief that no one entity, meaning a bank, should be in charge of one individual’s finances. But until that becomes a reality, traditional banking will likely have to serve as a bridge between centralized finance and decentralized finance.
The recent shutdown of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank will certainly cause headaches for the industry in the short term as many crypto companies search for new banking partners, uncertain if larger
entities will even want to touch crypto companies anytime soon. However, industry experts predict that small banks may step up to fill the void left by these larger banks.
“For now, it’s not clear what new financial institutions will partner with these crypto companies in the wake of Silvergate, SVB, and now Signature,” said Ilya Volkov, CEO and co-founder of YouHodler, a Swiss-based international fintech platform providing a variety of Web3 crypto and fiat services.
“The industry is currently running out of options and that needs to be addressed soon to prevent further problems,” Volkov added, noting that it will cause some fear-based reactions from the investors.
In the long run, however, this contagion shouldn’t hurt the crypto industry as there will likely be other smaller banks that will likely bridge the gap. “Crypto liquidity is likely to take a hit in the short-term, but this is an opportunity for new innovative challenger banks to step up and take the place of SVB, Silvergate and Signature,” said Andrei Grachev, managing partner at digital asset market maker DWF Labs.
Conclusion
As the recent events in the crypto industry show, Bitcoin is still a volatile asset, but it seems to be gaining ground as a store of value. The recent banking crisis, while causing some short-term turbulence, will not be the end of banks serving the digital asset industry. Instead, it may present an opportunity for smaller banks to step up and bridge the gap between centralized finance and decentralized finance.
FAQs
Q1: What is the store of value narrative in Bitcoin?
The store of value narrative in Bitcoin refers to the belief that Bitcoin can be used as a long-term investment or a hedge against inflation, similar to gold or other precious metals.
Q2: How has the recent banking crisis affected the crypto industry?
The recent banking crisis has caused some turbulence in the short-term, but it is not expected to have a long-term impact on the crypto industry.
Q3: What role do stablecoins play in the crypto ecosystem?
Stablecoins are designed to provide stability in the often-volatile crypto market by pegging their value to a stable asset, such as the US dollar.
Q4: What is the significance of small banks filling the crypto gap?
Small banks filling the crypto gap would provide a bridge between traditional banking and the decentralized finance of the crypto industry, allowing for smoother transactions and greater liquidity.
Q5: Is Bitcoin still a risky investment?
Yes, Bitcoin is still a volatile asset and investing in it comes with risks. However, the store of value narrative suggests that it can be a worthwhile long-term investment or hedge against inflation.
