• Bitcoin has surged beyond $26,000 due to the collapse of Silicon Valley Bank (SVB) and Silvergate
• The US administration stepped in to shore up the crisis and guarantee deposits would be made whole
• Market expectations have shifted as investors bet on no further interest rate hikes by the Fed
Why is Bitcoin Going Up?
Bitcoin has surged beyond $26,000 as interest rate expectations flip. With the collapse of Silicon Valley Bank (SVB) and Silvergate, coupled with the US administration’s intervention to guarantee deposits would be made whole, investors are now betting that the Fed is more or less done with interest rate hikes.
Inflation Reading Provides Further Impetus
The recent inflation reading provided further impetus for Bitcoin’s surge as investors dream of a return to a lower interest environment and surging crypto prices. The decoupling from other risk assets is also unusual and has not been seen to the upside since 2021.
Reasons for Hesitation
Despite this surge in optimism towards crypto, there are still reasons to be hesitant here. The shutdown of three crypto banks will hurt the industry significantly, while there has been nothing but bearish developments since the start of the year. This sudden reversal could signal a short-term rally before a continued bear market in future months.
Upside Since 2021
The decoupling from other risk assets is also unusual and has not been seen to the upside since 2021. This suggests that BTC may become increasingly uncorrelated from traditional markets over time which could provide some additional stability should volatility increase elsewhere in financial markets again.
Ultimately it appears that Bitcoin’s current run-up can largely be attributed to investor sentiment surrounding increased uncertainty in traditional finance coupled with incoming inflation data which signals potential future central bank easing measures which could ultimately result in an influx of capital into cryptocurrencies such as BTC as an inflation hedge asset class. While these drivers suggest good news for crypto bulls, caution should still be exercised when investing given potential risks posed by external developments such as tighter regulations or increased competition within both traditional and digital finance spaces moving forward.