Bitcoin, the largest cryptocurrency by market capitalization, has stayed resilient amidst fears of a looming recession and the ongoing banking collapse. Despite a global crackdown on cryptocurrency – something many are calling “Operation Chokepoint 2.0“, the markets have rallied significantly since the start of 2023, with Bitcoin hitting a new yearly high of $30,000.
So why has crypto rallied over the last few days, and are we about to see a continuation to new highs?
Bitcoin – a Hedge Against The Global Banking Crisis?
While the collapse of leading banks like SVB and Silvergate affected many crypto companies, it also shined a light on the fragility of the U.S. Banking system.
Ironically, the phrase “Not your keys, not your coins” can now be applied to FIAT currencies as depositors worry over the solvency of their banks.
Furthermore, the intervention of government agencies to bail out these “too big to fail” banks, without losses being borned by taxpayers, sparked rampant rumors of Quantitative Easing, or as we like to call it, “money printing”.
According to Bianco Research, these efforts by the Federal Reserve have “reversed roughly half of all” the quantitative tightening they accomplished over the past year.
Speculators are drawing parallels to the previous crypto bull run, which was sparked by not only the Bitcoin halving cycle, but also the Federal Reserve expanding the money supply to ease economic pressures caused by the Covid-19 pandemic.
Also Read: Here’s How Blockchain Can Fix Bank Runs
Death of the DXY!
The DXY, or U.S. Dollar Index, is a measure of the value of the U.S. dollar relative to a basket of foreign currencies.
Historically, a low DXY, or weak U.S. Dollar, is bullish for risk-on assets like cryptocurrencies, and vice versa.
The inversed correlation has held true since the start of this year, with Bitcoin reaching YTD highs while the DXY explores new lows.
Although the DXY’s fall could be attributed to a restart in Quantitative Easing, recent announcements from global superpowers could indicate a shift away from the U.S. Dollar as the world’s reserve currency.
Bitcoin Rallies Ahead of CPI Announcement
As the U.S. banking system continues to implode, Wall Street expects that the Federal Reserves’ hands are tied when it comes to rate hikes.
While the FED previously signaled hawkishness, or an intention to aggressively curb inflation, billions of dollars in bailouts and fear of further bank runs could force a reversal on their policies.
With the CPI, or Consumer Price Index data scheduled to be released tomorrow (12th April 2023), a Bitcoin rally could suggest that traders are awaiting a higher-than-expected CPI announcement.
Coupled with the release of the previous FOMC Minutes and lower unemployment rates, continued inflation could push Bitcoin higher than $30,000.
While Bitcoin’s recent rally has been a sigh of relief to everyone in Web3, it is important not to get caught up in the frenzy, especially when market sentiment has shifted from fear to greed so quickly.
Regardless, Bitcoin’s status as one of the top performing assets this year, alongside it’s narrative as not only a hedge against a devaluing U.S. Dollar, but also a hedge against the banking crisis, could spark a continued rally going into Q2 2023.
A key driver for continuation would be the upcoming CPI announcement, especially if actual results are higher than the current market expectation.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Chain Debrief