Inflation fell encouragingly. Investor hopes for a less draconian US central bank persisted.
Embracing the more upbeat vibe, Bitcoin continued to climb for much of Tuesday, at one point breaking above $26,000 for the first time since last summer before pulling back more than $1,000.
The largest cryptocurrency by market capitalization recently traded at $24,936, up about 2% in the past 24 hours. The BTC freeze followed two straight days of double-digit gains coupled with Binance stablecoin conversions, investor relief that the banking industry would not collapse and that the Federal Reserve would reverse its steady diet of aggressive rate hikes.
On Tuesday, a small drop in the consumer price index (CPI) from 6.4% in January to 6% last month appeared to give the Fed new reasons for monetary easing. Even a month-over-month increase in core inflation, which removes volatile food and energy costs, contained a counterbalance – a slight year-on-year decline.
“Bitcoin is surging as the liquidity situation appears to be changing rapidly,” Joe Ziolkowski, the 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 latest banking crisis with the collapse of Signature, Silvergate, and Silicon Valley banks had “provoked a federal response, injected a lot of money into the economy, and expanded the use case of Bitcoin as a decentralized alternative to our existing banking system.” strengthened.”
“Investors are clearly showing confidence in this,” he wrote.
Ether changed hands just above $1,700, roughly where it was at the same time on Monday. The second-largest cryptocurrency has roughly matched BTC’s rebound this week. Other major cryptos spent most of Tuesday healthy in the green before leveling off. APT, the token of layer 1 blockchain Aptos is recently up more than 14%. CRO, the native crypto of crypto exchange Crypto.com, was up about 6%. The CoinDesk Market Index, a measure of the crypto market’s overall performance, climbed 2.4%.
US stock markets also took heart from the CPI report, with the tech-focused Nasdaq and S&P 500 rising 2.1% and 1.6% respectively. But as CoinDesk analyst Glenn Williams wrote in his column on Tuesday, the Fed’s stance remains uncertain at its March 22 meeting.
Ziolkowski from Reim optimistically noted that “the Federal Reserve is now under pressure to slow, if not stop, the pace of rate hikes altogether, given that the rapid increases over the past year have left the system clearly under pressure. put pressure on.”
He added: “The setup for a sustainable rally for Bitcoin and other digital assets appears to be in play.”
The banking learning curve of the crypto industry
While savers will be made healthy, the shock waves the industry is feeling are no longer the concept of lost funds, but rather the loss of industry-friendly banks that were the pillars of the industry.
As CoinDesk recently reported, Crypto companies orphaned by the demise of Silvergate and Signature, as well as the incompetence of Silicon Valley Bank, harmed the industry.
William Quigley, a co-founder of Tether who now runs the non-fungible token (NFT) exchange WAX, stressed in an interview with CoinDesk that Silicon Valley Bank’s demise was one based on management incompetence.
Quigley says management should have noticed the impairment of its bonds and government securities around June 2022 and either sold the portfolio and took the losses, or brought in more deposits.
“I was chairman of an audit committee and a bank auditor. I know the conversation that happens when deposits are falling at an accelerated rate and our investment portfolio is degraded to the point where we don’t have enough money to pay off depositors,” he said.
Management should have contacted the Fed in January, and the Fed should have put the bank into some kind of supervisory winding down then.
The problem that will arise from this, he says, is a lack of confidence. SVB was regulated by multiple federal and state agencies, had a clean audit certificate, and was rated as an investment grade by a federally recognized rating agency, making it appear to be a good bank.
SVB existed because big banks wouldn’t normally give tech startups and crypto companies time.
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 Revolout about onboarding its portfolio companies.
DCG is reportedly in talks with major banks, but there is no guarantee they will come to fruition. These banks could be spooked by something and refuse to take on board companies that have been orphaned by Silvergate-SVB-Signature.
(DCG is the parent company of CoinDesk)
For about the last decade or so, Taiwanese crypto exchange Maicoin has had fiat on and off ramps with Far Eastern International Bank, which would be categorized as a major bank by the Fed.
Alex Liu, the CEO of Maicoin, told CoinDesk that there wasn’t really any magic to convincing banks to fiat his exchange pipelines. He is also quick to point out that the cause of the downfall of these three banks in the US is not crypto itself.
“It’s about not coming across as a bomb-throwing radical. It helps if you can put on a suit and talk about things like investor protection, KYC, AML, et cetera,” he said.
It also helps to have a physical address for your headquarters, he continued. Maicoin’s headquarters is located in an office tower in downtown Taipei.
“How many crypto companies refuse to do that one thing?” he asks.
Problems with crypto banking in Asia?
While all this is happening, many jurisdictions in Asia, from Hong Kong to Taiwan, are working to establish a crypto licensing regime for retail traders.
They will certainly look to the US to see what’s going on, especially given the past six months with the collapse of FTX, and now three banks.
No regulator or lawmaker in the US has come out and directly said, “Hey, let’s just ban this thing,” Liu insists.
Regulators in Asia will take that as a clue.
Bitcoin broke $26,000 to a nine-month high after the latest inflation data. The Justice Department and SEC have been investigating the collapse of Silicon Valley Bank. And why did Meta roll back support for NFTs on Instagram and Facebook?
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