The recent collapse of Silicon Valley Bank and Signature Bank in the US has caused market experts to view Bitcoin as a potential safe haven asset for investors. Bitcoin has surged up to 20% in price during this banking crisis, as investors worldwide search for safe havens and alternative currencies while weighing the probability of a period of lower interest rates.
The collapse of Silicon Valley Bank, which focuses on the tech industry, has sparked fears of contagion in the banking system, leading many to believe that the banking system was being hindered by an ongoing agenda of interest rate hikes. This has resulted in global financial stocks shedding $465 billion in just two days as investors reduce their exposure to lenders. There are also concerns that financial institutions could suffer due to their investments in bonds and other instruments following the Silicon Valley Bank’s collapse.
This is not the first time that Bitcoin has shown characteristics of a safe haven asset during times of economic uncertainty. During the pandemic in 2020, Bitcoin saw a surge in demand as investors searched for alternative assets to protect their wealth from economic fallout.
Emergency measures that regulators announced, such as the ability for depositors with the failed bank to have access to all their money from Monday morning and banks being permitted to borrow essentially unlimited amounts from the Federal Reserve for the next year, seem to have fuelled investor interest in alternative currencies to the dollar. These measures appear to be a new form of quantitative easing, according to Nigel Green, CEO and founder of deVere Group, referring to the bond-buying program used by governments around the world to stabilize the financial system after the 2008 crash and the pandemic.
Quantitative easing increases the supply of the dollar in circulation, which can lead to a decrease in the value of the US currency compared to other currencies. This increased supply of currency can also reduce its purchasing power, inevitably pushing investors to look for alternatives such as Bitcoin, which has a limited supply.
The US dollar has been dominant for over 75 years. However, indications suggest that the world could gradually be moving away from a dollar-dominated system. This is because high levels of debt and the ongoing amount of money printing to monetize these debts have caused the long-term value of the global reserve currency to decrease. Investors are therefore searching for alternative currencies, such as cryptocurrencies, which will increasingly compete with traditional fiat currencies, triggering the decreasing dominance of currently leading international currencies.
The banking crisis is expected to cause the Federal Reserve to pause its plan for continuing aggressive interest rate hikes. Nigel Green questions if there is anything more deflationary for the Fed than the second and third biggest bank failures in US history, and expects the stress in the banking sector and the wider impact on confidence will give the central bank a reason to pause its rate hike program, which is bullish for Bitcoin. Lower interest rates make borrowing cheaper, leading to increased spending and investment, which could increase demand for the world’s largest crypto as investors search for alternative assets with potential for higher returns.
