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Bitcoin Buoyed By Banking Busts
The News From Planet REX—Friday, March 24, 2023
What a week. From our vantage point many miles away on Planet REX, we watch events on Earth with love and concern, as the barely-evolved apes continue their unenlightened dalliance with centralized systems.
Systemically Important Credit Suisse Folds
The financial dominoes continue to "fall", in reality the victims of poorly-managed risk succumbing to the shove of rising interest rates. Silvergate, SVB, First National Bank, Signature. All important, none systemically so. Then Credit Suisse stepped up to the plate, cracked its knuckles, and asked us to hold its beer.
The crypto world watched with unrestrained glee as the 167-year-old financial titan went bankrupt in the style of Hemingway, "gradually, then suddenly". Badly-aging headlines from 2017 were dug up and flaunted with (well-deserved) Schadenfreude about the bank's then-CEO calling bitcoin a "bubble". Memes were created.
CS was hastily parceled up and sold for relative pennies over the weekend, heavily greased with guarantees from the Swiss central bank to aid its insertion into UBS's portfolio.
Bitcoin Rallies On Expectation Of Fed Pivot
BTC took the opportunity to power through some key levels, including the long-term $25,200 resistance line and the critical 200-week moving average, putting in a local high of $28,567 early Monday morning. Possible reasons?
1) The role of Bitcoin as a censorship-resistant, decentralized, inflation-proof insurance policy against the possibility of a widespread banking crisis (anecdotal evidence).
2) The expectation of lower interest rates as the Federal Reserve realizes its rapid hikes have screwed the proverbial pooch.
Jay Powell Walks The Line
Confirming 2) as a thesis, J-Pow duly backtracked on the expected 0.5% rate rise at Wednesday's FOMC meeting. Caught between the rock of inflation and the hard place of bank failures, the Fed settled for a token 0.25%, just to prove it wouldn't be pushed around by trivial inconveniences like economic stability or reality.
Hours before the FOMC decision, BTC rallied to new local highs a shade below $29,000, before profit-taking immediately dumped it $2,000 when the news broke. Stonks broadly followed the same pattern, rallying into the announcement but ending the day significantly lower. In the last two days, BTC has staged a recovery and is currently trading around $28,000.
So what's next?
Balaji Warns Of Hyperinflation
Crypto has proven uniquely sensitive to interest rate changes, and Bitcoin was launched as an alternative to TradFi in the midst of the 2008-2009 Global Financial Crisis, so the coming weeks could get spicy. If the raw sewage hits the rotary elements of the air conditioning system, BTC might potentially see a lot more interest. (Be careful what you wish for, since in the worst case scenario this would entail more banking failures, widespread hardship, social unrest, looting, martial law, cannibalism, etc, etc.)
Anticipating incoming hyperinflation, former Coinbase CTO Balaji Srinivasan has placed two $1 million bets that bitcoin will hit $1 million/BTC within 90 days (June 17). This unlikely eventuality could be dismissed as a publicity stunt to pump leveraged-long bags. Less cynically, it's a marketing campaign for a lifeline, because his full analysis is eye-opening. (TL;DR all the banks are insolvent, central banks have always known and lied about it to depositors, and will need to print, print, print to cover the liabilities.)
White House Confirms Hatred For Crypto
Providing balance in the Force was the White House, which published an economic report that included a whole chapter dedicated to explaining how digital assets lack fundamental value, and have so far failed to provide any of the benefits their proponents promised. (The report's authors do, at least, have the decency also to admit that "sovereign money does not have a fundamental or intrinsic value".)
Piling on the pressure, the SEC went after Coinbase—the most reputable, compliant, regulation-aware company in the space—with a Wells Notice focused on asset listings and staking. This, despite Coinbase's previous painstaking work with the SEC and adherence to regulation as it currently stands.
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