As Bitcoin reaches its highest level in nine months, many are wondering just how far the cryptocurrency can go. With a market capitalization of over $1 trillion and demand rising as investors seek a safe haven amid economic uncertainty, the price of Bitcoin has skyrocketed in recent months.
This has left many wondering if the cryptocurrency is in the midst of a sustained uptrend or if it needs a correction.
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US banking crisis: impact on the financial market and cryptocurrency prices
Last week, the sharp decline of three banks, namely Silvergate, Silicon Valley Bank (SVB) and Signature Bank, highlighted the fragility of the mainstream banking sector. Analysts have identified unfavorable market conditions and inadequate risk management as major contributors to the collapse of SVB and Silvergate.
The fall of SVB had profound implications for the global banking industry. Credit Suisse, the second largest banking institution in Switzerland, was also hit by a severe crisis that required a €54 billion bailout from the Swiss Central Bank.
With the development of the banking crisis, investors are turning to cryptocurrencies as a reliable alternative. As fears of a potential global financial crisis mount, the value of BTC/USD has continued to rise.
The link between the Federal Reserve and BTC
Overnight balance sheet data from the Federal Reserve revealed that around €300 billion had been pumped into the economy to deal with the financial crisis, sparking a new uptrend.
This action effectively reversed months of liquidity withdrawal under the Federal Reserve's quantitative tightening (QT) policy, and experts anticipate the reintroduction of quantitative easing (QE).
The recent reversal of the Federal Reserve's quantitative easing policy, which had been in place since 2021, has supported BTC/USD bulls, who are now looking to push prices higher.
In addition, growing concerns about a global banking collapse have reduced the likelihood that the Fed will implement a 50 basis point interest rate hike. Instead, Reuters predicts that the Federal Open Market Committee (FOMC) may only raise the federal funds rate by 25 basis points at its next meeting on March 22.
Inflation and Federal Reserve rate hikes can have a significant impact on the value of Bitcoin. When the Federal Reserve's interest rate decision becomes uncertain, the dollar index tends to fall.
Currently, the dollar index is at 103,86 and may continue to fall, which may be beneficial for BTC/USD, as a fall in the US dollar may cause the value of Bitcoin to rise.
Binance CEO: BTC Resists Inflationary Pressures
On March 18, Binance CEO Changpeng Zhao took to Twitter to praise a fundamental feature of Bitcoin technology. He pointed to the ability of cryptocurrencies to withstand inflationary pressures, a quality that traditional fiat currencies lack.
In his tweet, Zhao noted that unlike fiat currencies, no one can print Bitcoin from scratch, and mining is a key function in its creation.
Zhao's comments came in response to reports that the US government had issued a $300.000 billion bailout "from scratch" following the collapse of three major US banks.
In the past 24 hours, BTC/USD has risen above €27, according to data from market-tracking website CoinMarketCap. This price level is one of the highest that BTC/USD has reached in the last nine months.
On March 18, Bitcoin started trading at €27. In the last 350 hours, its value has increased by 24% and is currently trading at €2,75. BTC/USD has experienced fluctuations, reaching its highest value at €27.416 and its lowest at €27.
Furthermore, the value of Bitcoin has risen over 35% in the past week, with recent news of bank failures and concerns about potential interest rate hikes playing a large part in driving its value up.
The Bitcoin price experienced a sharp decline after a short period of consolidation at around €26,500. This led to a short-term downtrend as it broke below the €25,000 and €25,500 support levels.