D-Keine
The U.S. banking sector has been engulfed in a crisis of confidence. From the apparent overnight collapse of SVB Financial Group (SIVB), a relative niche bank specializing in startups and venture capital funding, all eyes are on other regional names and the mega-cap leader that could be facing similar pressures. Regulators moved quickly in their attempt to contain the mess, but at the same time, the damage has been done. The new layer of uncertainty comes from questions regarding the underlying stability of the entire financial system.
On the other hand, the setup can be seen as particularly bullish for Bitcoin (BTC-USD), on the basis of the cryptocurrency being an alternative form of money, and operating decentralized outside the traditional financial system. BTC has had a very impressive year, rallying nearly 50% from its 2022 lows, gaining movement over the past week in contrast to the volatility in equity markets. We see several tailwinds supporting more upside.
BTC as the Gold Standard of Crypto
Looking back at all the scandals that have rocked the crypto sector, a common theme becomes apparent. Bitcoin was not the cause or culprit in the fall of names like “FTX”, “Voyager Digital”, “Celsius Network”, or Terra (LUNC-USD) among others.
While those examples of apparent fraud or mismanagement have added to the reputation of crypto being the wild-west of financial markets, Bitcoin can stand out as “the gold standard” being the largest and oldest cryptocurrency, bigger than a single ecosystem or celebrity entrepreneur.
The idea here is that while most users are typically trading Bitcoin on an exchange like Coinbase Global Inc (COIN) or Block Inc (SQ), it doesn’t necessarily need those platforms to survive. BTC is bigger than any fintech startup and serves a function as a store of value based on the credibility of its own transparent and public network protocol.
Without getting into any apocalyptic scenarios requiring the Dollar or other fiat currencies to fail, the main tailwind right now is that the ongoing macro developments simply work to reaffirm Bitcoin’s place as an alternative asset.
So while the failure of SVB and Signature Bank Group (SBNY), in particular, may have been in part related to their risker lending profile serving tech and even some “crypto” startups, it had nothing to do with Bitcoin. From there, we sense any new regulatory effort going forward would like to target crypto exchanges and token offerings which are the problematic areas.
Again, Bitcoin is above and beyond all that. BTC will always have value based on its capped global supply while people are willing to accept an exchange rate. For all the naysayers that have predicted BTC’s demise in the last decade, there’s a case to be made that its outlook is now stronger than ever.
These are themes that were covered by ARK Invests within the investment managers’ annual “Big Ideas” of innovation update. According to the group, Bitcoin addresses an underlying weakness of “centralized monetary systems” that have failed potentially billions of people.
Growing recognition and adoption of Bitcoin, evidenced by climbing transaction levels and the number of addresses confirm the long-term potential where demand will further lift prices. The benefit of Bitcoin being auditable and transparent has been reinforced by the latest banking crisis.
source: ARK Invest
Bullish Tailwinds for BTC
While we see space for some of the other major cryptocurrencies to survive as digital assets like Ether (ETH-USD), it is our view that Bitcoin benefits from a higher layer of quality as the most fundamentally pure crypto ideal. Here we can draw a parallel between gold vs silver and other metals, which is simply our preference that is understandably controversial.
As a trading instrument, BTC has “enough” volatility that attempting to find the next great token is simply a futile effort. BTC should lead the sector higher, and it’s hard to see a disconnected scenario where BTC somehow gets left behind.
Over the near term, there are several factors at play supporting continued upside momentum in BTC.
- The pullback in rates/ lower bond yields
- U.S. Dollar selloff
- Store of value angle compared to banking system fiasco.
- Technical setup, approaching a breakout zone.
First is the “historic” repricing of rates, based on a consensus that the Fed is effectively done hiking. Simply put, the lower available yields make holding Dollars relatively less attractive compared to other currencies.
source: CNBC
BTC is capturing some of this dynamic reflected in a falling U.S. Dollar Index which is a trend that has been in place, curiously since BTC bottomed in Q4. We can also make a connection that stronger foreign currencies like the Euro or even fiat from emerging markets support the buying power of BTC from those regions as another impulse.
source: finviz
BTC Price Forecast
We’re bullish and the first target is $25k which marked the recent high in February. A breakout from there would place $30k in sight as a return to levels from last Q2.
On the downside, the area to watch is ~$21.5k as the first area of support. A break lower from there would undermine the recent gains and likely drive a new round of volatility. As long as BTC can hold ~$18k as the next important area of support, the bulls will likely stay in control. It won’t likely be a straight line higher, but our view is that there is room for more upside with BTC proving that its relevancy is alive and well.
source: finviz
Final Thoughts
With BTC trading near its highest since last August, the latest rally despite the financial market volatility should be encouraging for investors. Ultimately, the higher price level of BTC works to rebuild confidence in the cryptocurrency following a particularly challenging 2022.