Bitcoin’s Recent Dramatic Rally Amid Financial Uncertainty: Analyzing the Contributing Factors

Over the past two days, Bitcoin has seen a remarkable rally, with the industry taken aback by the surge to over $26,000 on February 14th.

The cryptocurrency’s rally reached nearly a 30% increase, reminiscent of the last significant spike on October 25th, 2019. This article aims to outline some of the reasons for this recent rise and share insights with readers.

Another Bailout

In the early morning of March 13th, the US Treasury announced its intention to provide up to $25 billion in funding to support the Federal Reserve’s emergency bank lending program.

This came just as the market was beginning to recover from the Silicon Valley Bank incident.

In collaboration with the Federal Reserve and FDIC, the US Treasury also confirmed that customers would be able to withdraw all funds on Monday and that taxpayers would not be responsible for any losses related to Silicon Valley Bank’s bankruptcy.

The FDIC Deposit Insurance Fund, with over $100 billion, is sufficient to cover all deposits at Silicon Valley Bank and Signature Bank.

This series of announcements alleviated the panic caused by Silicon Valley Bank’s shutdown, leading to the closure of short positions opened during the turmoil. Consequently, Bitcoin’s dramatic two-day rally was set in motion.

Implications for the US Financial System

The swift progression of these events surrounding Silicon Valley Bank, the 16th largest bank in the United States, highlights the country’s concern for its financial system.

It is a well-established pattern that every time the Federal Reserve raises interest rates, it triggers a crisis, followed by the US economy stabilizing and eventually recovering in the wake of other countries’ financial collapses.

In this financial game, it is crucial that the United States avoids being the first to experience a crisis.

Following the collapse of Silicon Valley Bank and Signature Bank, regional bank stocks experienced a sharp decline on Monday.

This may pressure the Federal Reserve into a situation it has sought to avoid for the past year — balancing inflation concerns without jeopardizing financial stability. As a result, the Federal Reserve may need to reassess its priorities.

Interest Rate Predictions and Adjustments

According to CME’s “Fed Watch,” there is a 96% probability of the Federal Reserve raising interest rates by 25 basis points to 4.75%-5.00% in March.

However, the probability of a 50-basis point increase has dropped from 80% to 0. Goldman Sachs has also revised its expectations, stating that it no longer anticipates a rate hike at the March 22nd meeting due to recent pressures on the banking system.

Regulatory Landscape for Bitcoin

The cryptocurrency market has experienced numerous setbacks since the Luna crisis in March 2022, including the bankruptcy of 3AC and the FTX collapse.

However, the SEC has indicated that it views Bitcoin as a commodity rather than a security, easing concerns about potential regulatory issues. Furthermore, Grayscale’s ongoing legal battle with the SEC regarding the rejection of a Bitcoin spot ETF may reach a decision in the third quarter of this year, with the company’s CEO, Michael Sonnenshein, vowing to take the case to the Supreme Court if necessary.

Short the Banks Long Bitcoin

In light of these developments, the market has reason to believe that the worst may be behind us.

The recent surge in Bitcoin’s value, coinciding with turmoil in traditional finance, has led many to reconsider the cryptocurrency’s potential as digital gold and hedge against financial instability.

As the panic surrounding Silicon Valley Bank subsides and the market calls for a pause or even a cut in interest rates, it is worth reflecting on Bitcoin’s original purpose and the potential return of its early hedging properties.

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