Bitcoin Surges as Crisis Hits Global Banking

Bitcoin was close to nine-month highs on Monday and had its best week in four years as the global banking crisis drives some investors to turn to digital assets.

The biggest cryptocurrency by market value hit its highest since June 12 on Sunday at $28,474.

It rose 26% last week and is up more than 35% in ten days as turmoil in the banking sector has rippled around the globe — beginning with the collapse of Silicon Valley Bank and culminating, so far, in the UBS takeover of Credit Suisse at a discount over the weekend.

Overall this week, Bitcoin has gained over 37% against the U.S. dollar. Bitcoin’s market capitalization added $194 billion in 2023, representing a 66% gain year-to-date, outperforming Wall Street banks’ stocks.

Bitcoin is up about 65% so far this year, versus the S&P 500’s 2.5% gain and Nasdaq’s 15% decline in 2023.

“The momentum is all driven by liquidity, as bitcoin is an alternative liquidity vehicle,” Markus Thielson, head of research and strategy at digital asset financial services firm Matrixport based in Singapore, told Reuters.

Bitcoin “can hit $45,000” by year’s end following the banking crisis

He expects bitcoin can hit $45,000 by the year’s end, with liquidity from central banks finding its way into crypto assets, much as it did during 2021, when bitcoin scaled record heights.

Credit Suisse was acquired by the UBS Group for nearly $2 billion on Sunday as part of emergency plans led by Swiss authorities to preserve the country’s financial stability. As part of the agreement, the Swiss National Bank committed to providing over $100 billion in liquidity to UBS.

The $2 billion deal represents a considerable discount under Credit Suisse’s market value on March 17 of nearly $8 billion, according to data from Companies Market Cap.

Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday. Owners of $17 billion worth of “additional tier one” bonds — a riskier class of bank debt — will lose everything, Swiss regulators said.

Christine Lagarde, President of the European Central Bank, said she welcomed the “swift action” of the Swiss authorities.

Her comments were echoed in the US, where Treasury Secretary Janet Yellen and Federal Reserve Board chairman Jerome Powell both said the move supported “financial stability”.

Credit Suisse had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis.

But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

Shares in the 167-year-old bank fell 25% over the week, money poured from investment funds it manages, and at one point account holders were withdrawing deposits of more than $10 billion per day, the Financial Times reported. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.