Analysis, Bitcoin

Bitcoin is Dominating

As another financial crisis looms, BTC is now the flight-to-safety.
Ben Giove Ben Giove Mar 22, 20238 min read
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Bitcoin is Dominating

Dear Bankless Nation,

Apparently, it's Bitcoin szn at Bankless.

This week, we interviewed Balaji Srinivasan on his bold $1 million bet. Today, we're taking a look at BTC's impressive run, climbing even as macro conditions have grown more concerning.

- Bankless team


The world is in the midst of yet another financial crisis... and the bitcoiners are watching.

This latest meltdown began with the collapse of Silicon Valley Bank, but has since spread to other institutions across the globe. In response, Central Banks and governments have done what they always do - print money to keep the system afloat, implicitly devaluing their currencies along the way.

The Fed’s balance sheet has grown by nearly $300B since the crisis began, undoing nearly half of the $600B in quantitative tightening they had conducted since March 2022.

In the past, there was little escape from this system. Maybe you’d buy some gold and try to bury it in your backyard. Thankfully, we now have a much easier exit in the form of crypto. Cryptoassets have soared since the Banking Crisis of 2023 began, led by a resurgent Bitcoin.

The massive rally in BTC over the past several weeks has been nice for crypto holders… but has implications that are far more significant than a double-digit percentage gain in price.

In fact, this rally has the potential to change the perception of crypto forever. How so? Let’s find out by exploring how markets have responded since the collapse of SVB so we can assess just how it has, and will, impact the future of Bitcoin.

Bonds:

The bond market has experienced tremendous volatility over the past several weeks, with prices soaring and yields plummeting since the crisis began.

The yield on 2-Year Treasuries has dropped like a stone from 5.1% on March 9 to 4.1% on March 21. The 2-Year is considered by many to “lead the Fed” in that it’s the best predictor of how Central Banks will alter the Fed Funds rate in the short-term. 10-Year Treasuries have also plummeted since SVB, dropping from 4.0% to 3.6% since November 9.

US 2YR and 10YR Yield 3/9-3/21 - Source: TradingView

This drop in yields is likely due to several factors. One is due to a “flight-to-safety,” as investors flee to bonds due to their (perceived) low-risk, as it's unlikely that the U.S. Government (at least nominally) will default on its debt. The move is likely also being driven by investors front-running a potential Fed pause or pivot, though as we found out today, the hikes haven't quite come to an end.

Stocks:

The equity markets have experienced significant volatility since the crisis began.

The S&P 500 and Nasdaq plunged 4.3% and 4.7% respectively between March 8-13, as fears surrounding the health of regional banks, and potential contagion, ran rampant. However, both indices have since recovered from that decline following the government's intervention at SVB and Signature, with the S&P rallying 4.9% and Nasdaq 7.8% since the morning of March 13.

S&P and Nasdaq 3/9-3/21 - Source: TradingView

Although individual sectors such as regional banks have continued to be decimated, the indices are likely being buoyed by confidence that the government will prevent the spread of further contagion, as well as due to the aforementioned expectation of rate cuts from the Fed. The outperformance of the Nasdaq relative to the S&P may also be due to a flight to the safety of big tech, as names like Apple, Microsoft, Google and Meta have all surged since the local bottom on March 13.

Precious Metals:

Precious metals have (by their standards) screamed since the onset of the banking crisis. Gold has rallied 11.5% since March 9, while Silver has gained 7.0% as well during this period.

Gold and Silver 3/9-3/21 - Source: TradingView

Like with Treasuries (and to an extent FAAMG tech stocks), the rally in gold is likely due to a flight-to-safety. Unlike bonds and stocks, Gold and precious metals serve as hedges against an imploding fiat system, as they are non-sovereign, and not dependent on or issued by any one country or monetary regime.

Crypto Performance

Now, onto the main attraction – crypto markets have ripped higher since the onset of the banking crisis. BTC has soared 29.4% and ETH 16.4% since March 9, with the crypto market adding $263B in value over this stretch.

BTC and ETH March 9 - 21 - Source: TradingView

This comes despite a 10.1% and 10.6% decline in BTC and ETH respectively between March 9-10 amid the “stablecoin panic,” when USDC and others with exposure to it such as DAI and FRAX, de-pegged upon fears that Circle had lost the $3.3B in deposits it held at SVB.

The majors, and in particular Bitcoin, which has seen its dominance rise from 43.6% to 47.3% since SVB, are rallying for the same reasons as gold. Crypto is serving as a safe haven.

BTC Dominance - Source: TradingView

In addition, like the other asset classes mentioned above, crypto is also likely front-running a Fed pause and/or pivot, expecting the Fed tightening cycle to come to an end. Furthermore, BTC is a liquidity bloodhound - and the asset appears to be sniffing out the substantial increase in the Fed’s balance sheet, and implicit devaluation of the dollar, that has occurred in the wake of SVB.

Why The Game Has Changed

The game has changed for Bitcoin. Despite being considered by skeptics as the ultimate risk-on asset, BTC has instead acted as a safe haven during the largest bank panic in decades. In fact, it’s done so while outperforming every single major asset class since the onset of the crisis.

While the banks burned, Bitcoin has soared and served as the best protection against a broken fiat system. In theory, it makes sense why Bitcoin would perform so strongly. It has all of the properties of a safe haven and store of value. As discussed above, Bitcoin is a non-sovereign asset, and is more scarce, portable, and difficult to seize than its analog counterpart in gold.

However, we have yet to really see this play out in practice. Instead, crypto has often been labeled as a “high-beta Nasdaq” a label that was somewhat warranted due to the strong historical, positive correlation between the two.  

BTC and Nasdaq Correlation - Source: The Block

On paper, this comparison has never really made much sense. Although both Bitcoin and the Nasdaq are related to technology, BTC is a monetary asset. It’s not a company, and it produces no cash flows. Despite this, the correlation had yet to dramatically weaken until SVB.

BTC Correlation w/Gold and Nasdaq - The Block

As we can see, since the crisis began the correlation between BTC and the Nasdaq has broken down, while the correlation between BTC and Gold has strengthened. It’s a small sample size, but given the magnitude of the events that have taken place over the past several weeks, this price action is impossible to ignore. It seems to suggest that Bitcoin is transitioning from just another tech play to becoming true digital gold.

This is a seminal shift in how BTC will be viewed and traded. Whether they be crypto natives, TradFi institutions, retail investors, or nation states, investors will now increasingly see Bitcoin as a safe haven, rather than a pure vehicle for speculation.

Bitcoin not only can protect against institutional failures, but also serve as a hedge for its holders against currency debasement as a result of massive increases in the money supply, such as what we’ve seen since BTFP. This change is likely to create a bit of a self-fulfilling prophecy, as investors being rewarded for having fled to BTC during this crisis increases the probability that they will behave similarly during the next one.

So.. Will BTC Hit $1M?

As it always does, Bitcoin’s rally has energized the community and led to audacious price predictions from some of the industry's most prominent figures. The hottest of these takes have come from industry heavyweights like Balaji Srinivasan and Arthur Hayes, who have each called for BTC to hit $1M on the backs of a devaluation of the dollar due to infinite money printing from the Fed.

Where the predictions differ is in their timeframes. While Hayes is predicting that we’ll see seven figure BTC over the next several years, Balaji believes that it could hit $1M within the next 90 days.

Balaji’s call is enough to give anyone existential angst, whether they be a crypto or fiat holder, as a 90-day hyperinflation of the USD would result in significant turmoil throughout the entire world.

Whatever timeline proves correct, the monetary system is breaking down -- it’s a zombie that never recovered from the global financial crisis and continues to be propped up by printing.

With each emergency action, bailout, and dollar printed, its fragility becomes more apparent to the entire world. It feels as if fiat is on the ropes, and all roads lead to endless money printing. Yet, the cynic in me feels that Central Banks are not completely out of ways to change the narrative and continue kicking the can down the road in the interim to prolong their inevitable demise.

One area in which I do agree with Balaji is the rapid pace at which hyperinflation will occur, whenever that time comes. Balaji has argued that due to the world’s digitization and the speed at which we can transmit information and value, the collapse of USD relative to Bitcoin will occur at an incredibly fast rate. This makes sense. As we’ve seen in both crypto and now TradFi over the years, in the internet age, people can lose confidence in a currency and financial institution at an incredibly fast rate.

It’s quite possible that this hyperinflation narrative is overblown in the interim. But, after the events of the past several weeks, I feel more confident than ever that crypto will grow to represent a more critical flight-to-safety asset for investors.


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Ben Giove

Written by Ben Giove

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Former Senior Analyst at Bankless.

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