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| By Alex Benfield |
The daring trades, extreme price fluctuations, intense exhilaration and the pervasive sense of fear, uncertainty and doubt are all markers of the crypto market.
Surprisingly, however, they also describe the banking sector at the moment.
First Republic Bank has witnessed a dramatic downfall, with its chart below strongly resembling the chart of a small-cap altcoin during a crypto bear market.
As the 14th largest bank in the U.S. at the beginning of the year, FRC's value has plummeted by over 95% year-to-date — a staggering decline rarely seen in the realm of traditional finance.
This is just one example. But there are plenty more, which is why the current financial landscape is characterized by mounting uncertainty as banks face liquidity problems due to their inadequate management of interest rate risk.
Investors are now searching for alternative investment options to protect their wealth.
Enter Bitcoin (BTC, "A-"). To those who haven’t been paying attention, the original crypto has experienced a surprising surge in value amid rising panic within the banking sector.
As banks grapple with liquidity issues resulting from a failure to hedge against interest rate risk, the appeal of Bitcoin as a reliable store of value divorced from the traditional finance — also called TradFi — system becomes increasingly evident.
This trend showcases the growing recognition of Bitcoin's role as a safe haven, insulated from the centralized risks associated with TradFi.
As a decentralized digital currency with limited supply and international accessibility, Bitcoin offers an attractive solution, providing a level of security and stability that is seemingly absent from the traditional banking sector.
This growing perception of Bitcoin as a reliable safe haven bolsters its value and strengthens its position within the global financial landscape.
That’s why I said this was only surprising to those not paying attention. You and I have been. So, it’s not too shocking to us that Bitcoin has responded positively to today’s news.
BTC has bounced from Monday’s low of $27,000 all the way up to the current price of just under $30,000, good for about a 10% gain.
Now we are left to wonder whether Bitcoin can clear resistance and get back above $30,000. For that we will have to wait and see.
Just a few days ago, it seemed like the recent rally was on its last legs. After today, it appears it might have some life left in it after all.
And remember, if there’s more upside for BTC, there’s likely more upside for the broad market as well.
In fact, Ethereum (ETH, “B”) is following along, gaining almost 5% on the day.
That leaves the price of ETH at about $1,950 — just under the psychological resistance level of $2,000, but above the previous channel top at $1,900.
It would be nice to see ETH make some headway before we head into next month’s Federal Open Market Committee meeting on May 2, as that day will likely bring with it some volatility.
Click here to see full-sized image.
As long as both market leaders are still trading under those key resistance levels, the threat of a greater downturn can’t be written off.
We will need to see BTC and ETH establish and maintain themselves above those important price levels of $30,000 and $2,000, respectively.
That said, it is still refreshing to see the crypto market show signs of strength amid all the panic going on in the banking sector. Should the banking crisis continue or worsen, it will likely spill over into asset markets and could bring with it a full-blown recession and credit crunch.
It remains to be seen just how Bitcoin and other cryptocurrencies would react to such an event. After all, they were designed to withstand the domino effect of a crisis in the TradFi markets.
And today has shown us it’s possible for more investors to see Bitcoin as an uncorrelated store of value to safekeep their money during a bank panic.
On the other hand, many are still weary of the Wild West-like nature of crypto. And even crypto platforms and projects can be reliant on banks, as many centralized platforms still need a connection to fiat currency to onboard new users.
So, too much upheaval in the banks could still ripple through.
Even if no major crypto entities are impacted, if conditions get bad enough, that could cause a liquidity crunch for investors, causing them to withdraw from risk assets like cryptocurrencies.
Given Bitcoin’s brief history, we just don’t have enough past examples to draw on, leaving us two options: We can either speculate on what will happen, or we can prepare to the best of our abilities for both possible futures.
The Weiss Crypto team and I are supporters of the latter option. Doing so means adjusting your portfolio to your risk/reward tolerance and diversifying as much as possible.
There are plenty of free tools at your disposal on our website to help you do just that, starting with our proprietary crypto ratings down to price alerts you can set on your phone.
And if you’re looking for more detailed tools, I suggest you watch Juan and Martin’s latest video briefing. In it, they break down how the Crypto Timing Model — the main tool Juan uses in his trading services — works, which cryptos he thinks will outperform in the next bull run and which ones he thinks will flounder.
I’m a believer in this space. As such, I have hope that more and more people will see the benefits of cryptocurrencies during such a time.
But I know nothing is adopted overnight, just as no asset moves higher in a straight line. That’s why in these Weiss Crypto Daily issues, I strive to balance the near-term market action with our long-term outlook, so you can get the whole picture.
Stay tuned for more.
Best,
Alex
