From Lehman Brothers to First Republic Bank: Bitcoin’s rise in uncertainty
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As financial institutions falter, customers increasingly seek alternative monetary avenues, with bitcoin frequently reaping the rewards.
Last month’s upswing of the leading cryptocurrency, for instance, followed a recent banking upheaval, which included First Republic Bank (FRB), Silvergate Bank, SVB, and Signature Bank crises.
Another bank went bankrupt in the US. Shares of American bank First Republik fell by almost 50 percent.
By the time the stock exchange closed, it was trading at the lowest level in history – about $8.1 per paper.
The decline of First Republic began after the failure of… pic.twitter.com/esgZANpcDT
— Spriter (@Spriter99880) April 26, 2023
Consequently, Bitcoin’s optimistic narrative has been thrust back into the limelight.
The last year , there has been an increased correlation between #btc prices and #GOLD. This strongly positive correlation is observed on a 30day, 90day and 365day .The correlation remained elevated during the recent US banking crisis, which suggests a growing appreciation . pic.twitter.com/K1dxKXuDcd
— Manos. (@Kara_nik_olas) April 23, 2023
However, one aspect remains unequivocal: between the financial crisis of 2008 and 2023, the world’s first cryptocurrency has evolved into a mainstream asset.
Blast from the past
The 2008 financial crisis manifested as a confluence of elements, culminating in the disintegration of prominent financial establishments, a steep stock market decline, and an ensuing worldwide recession. The contributing included:
- The subprime mortgage bubble: The ebb and flow of the US housing market was driven by an influx of subprime lending, which encompassed loans extended to borrowers with less than stellar credit ratings. As housing prices began their descent in 2006, numerous subprime borrowers defaulted on their loans, resulting in a swift escalation of foreclosures.
- Reckless risk-taking by financial institutions: Banks and other financial entities engaged in risky endeavors, including heavy investments in mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). The housing market’s collapse led to a sharp decline in the value of these assets, inflicting substantial losses upon the institutions in possession of them.
- Insufficient regulatory measures: The financial sector functioned within a feeble regulatory framework that neglected to address the hazards posed by intricate financial products and the interconnectivity of international financial institutions. This oversight deficiency exacerbated the crisis’s gravity.
The tumultuous period saw the bankruptcy of esteemed financial organizations, such as Lehman Brothers, alongside extensive government bailouts and a global recession.
The International Monetary Fund (IMF) reported a 0.6% contraction in the global economy in 2009, with advanced economies facing a 3.4% contraction. The crisis precipitated widespread job losses and impacted economic growth and income inequality.
The birth and evolution of Bitcoin
Amid the 2008 crisis, the innovative concept of Bitcoin emerged. In October of that year, an individual or collective operating under the pseudonym Satoshi Nakamoto published the seminal Bitcoin whitepaper, unveiling a decentralized, peer-to-peer (P2P) electronic cash system.
This digital currency was ingeniously crafted to operate autonomously from central banks and governments, providing a potential alternative to the traditional financial infrastructure that had proven so fallible.
One of the primary advantages of Bitcoin was its capacity to bolster financial stability by mitigating the risks associated with centralized financial institutions.
By functioning on a decentralized network, Bitcoin could eradicate single points of failure, rendering it less vulnerable to crises akin to those that beleaguered the conventional banking system in 2008.
Bitcoin garnered attention primarily from a niche community of technologically adept enthusiasts and early adopters in its embryonic phase.
Nevertheless, after the 2008 crisis, Bitcoin gradually gained traction as a digital asset and an alternative to conventional currencies.
The currency’s inaugural real-world transaction transpired in 2010 when a programmer named Laszlo Hanyecz procured two pizzas for 10,000 bitcoin.
#Bitcoin history: Bitcoin Pizza Day is celebrated on May 22nd every year, as it was the day when Laszlo Hanyecz bought two pizzas from Papa John’s using 10,000 #BTC, which were worth $41 at that time.
The transaction was arranged four days earlier, on May 18th, when Hanyecz… pic.twitter.com/2xNOzXAV0y
— BecauseBitcoin.com (@BecauseBitcoin) April 27, 2023
By 2013, bitcoin’s value had soared past $1,000, and it continued to garner attention as an alternative investment vehicle.
Bitcoin’s potential as a safeguard against economic uncertainty became increasingly evident during the European debt crisis.
As nations such as Greece, Italy, and Spain confronted severe financial challenges, bitcoin witnessed a surge in demand from investors seeking to shield their wealth from the instability of traditional markets.
By 2013, the volume of daily bitcoin transactions had swelled from a mere few hundred to over 50,000, reflecting the burgeoning interest in this digital currency.
Since that time, the landscape has evolved considerably. As of May 16, bitcoin has recorded 526,379 transactions per day, suggesting that the cryptocurrency has grown increasingly stable and resilient over time.
The 2023 banking crisis
The recent banking crisis witnessed the downfall of three of the largest US banks, marking the most significant failures since the Great Depression. The causes of their collapse were manifold and can be primarily attributed to the following factors.
As I highlighted during the recent “banking crisis” (which is really a US Treasury market crisis), Bank of America is sitting on a mountain of unrealized losses that could become a major problem if short-term yields remain higher for longer. The BTFP is a 1-yr fix, but watch… pic.twitter.com/c39CTkMzDA
— Loren Boston THE FIAT WORLD IS WORRIED (@LorenBoston) April 23, 2023
First, all the banks suffered substantial losses on their balance sheets due to bad loans, investments in high-risk assets, and diminishing market values.
Second, as the economy grappled with uncertainty and low-interest rates, banks’ income from interest and fees dwindled steadily, impairing their ability to generate profits.
Finally, the public’s trepidation and waning confidence in the banks resulted in a run on deposits as customers withdrew their funds, further undermining the banks’ financial standing.
The disintegration of Silicon Valley Bank and Signature Bank reverberated throughout the global financial system, precipitating widespread economic chaos.
The stock market experienced a cataclysmic crash as the collapse of these banks incited a massive selloff, causing the Dow Jones Industrial (DJI) and the S&P 500 indices to plummet by over 20% in the ensuing weeks.
Jeremy #Grantham predicts a decline in US house prices, potentially leading to a 52% plunge in the #SPX500 and more banking problems.#LEI falls 1.2% in March, predicts mid-2023 #recession#investing #stocks #VIX #QQQ https://t.co/EvbSsXRtsr
— InvestifyHQ (@ACR38605450) April 22, 2023
Concurrently, a credit crunch emerged as banks tightened their lending standards in response to the crisis. Consequently, credit became increasingly scarce, making it difficult for individuals and businesses to secure loans and finance operations.
Texas Manu Outlook Survey: “We have already been notified that our credit line renewal may be difficult. Our monthly increase in costs (rate) is at highs not seen since 2007.” pic.twitter.com/bcYaaiAsj8
— Jeffrey P. Snider (@JeffSnider_AIP) April 25, 2023
As the crisis unfolded, governments worldwide were compelled to intervene and implement measures to salvage the floundering banks and restore faith in the financial system.
This intervention included bailouts, liquidity support, and the introduction of new regulations to avert similar crises in the future.
Lastly, the banking crisis precipitated a global economic slowdown, as businesses and consumers curtailed spending and investment in reaction to the uncertain economic climate.
Bitcoin’s evolution as a safe haven
In contrast to the 2008 crisis, the 2023 crisis saw bitcoin playing a more significant role as a potential safe haven asset.
With a market cap of over $523.5 billion trillion as of May 16, bitcoin has matured considerably since its inception and gained widespread acceptance as a viable investment option.
Its performance has surpassed traditional assets like gold, earning the nickname “digital gold” and solidifying its position as the fastest-growing asset in the history of finance.
There’s been significant demand for #Bitcoin in the western hemisphere since the onset of the banking crisis.
Most notable spikes in mempool congestion have occurred during US Trading hours. 🇺🇸🚀 pic.twitter.com/GphkIbUx9U
— Mitchell 🚀 (@MitchellHODL) April 26, 2023
Initially viewed as a fringe alternative to conventional finance, bitcoin has matured into a recognized and respected asset class, providing stability and security amidst global financial turmoil.
With its limited supply of 21 million coins, a decentralized structure, and immunity to factors contributing to the banking crises, bitcoin has attracted a new wave of institutional investors and high-net-worth individuals.
Its increasing recognition as a legitimate asset class further emphasized Bitcoin’s expanding maturity. In 2020, the Office of the Comptroller of the Currency (OCC) in the United States issued guidance allowing banks to hold cryptocurrency assets on behalf of their customers.
In September 2021, El Salvador became the first country to adopt bitcoin as a legal tender, further validating its status as a mainstream financial instrument.
The future of crypto is definitely not where you think it is.
It’s going to be in places like El Salvador that will become the next Monacos in a few decades. #Bitcoin is global and will go where it is welcomed. Early movers today will reap huge benefits later. pic.twitter.com/tZ50BChLHO
— Duo Nine ⚡ discord.gg/ycc (@DU09BTC) April 20, 2023
In the same year, several countries, including Nigeria and Tanzania, expressed interest in exploring the potential of digital currencies.
Bitcoin adoption, milestones, and more
Between the 2008 and 2023 crises, Bitcoin experienced significant technological advancements and expanded adoption.
The Lightning Network, an off-chain solution designed for faster and more affordable Bitcoin transactions, gained traction, boasting over 17,500 active nodes and a capacity exceeding 5,500 BTC.
Decentralized finance (DeFi) platforms built on Bitcoin, such as Stacks, witnessed substantial growth, offering users alternative financial services beyond traditional banking systems.
None can compete with #Bitcoin’s level of security, liquidity name recognition or regulatory clarity 🧡
⭐ @andrerserrano on why he’s excited to build on Bitcoin pic.twitter.com/IcS29xDMRj
— stacks.btc (@Stacks) April 21, 2023
Concurrently, the regulatory landscape surrounding cryptocurrencies evolved, with governments worldwide implementing more precise rules and regulations for the industry.
This heightened regulatory clarity helped legitimize bitcoin as an asset class and stimulated greater institutional adoption.
The year 2021 proved to be a watershed moment for bitcoin, as evidenced by the launch of Canada’s first Bitcoin ETF, the Purpose Bitcoin ETF, and JPMorgan’s creation of a bitcoin exposure basket for its clientele.
Fidelity is reportedly launching a Bitcoin ETF in Canada.
First institutionalization, then to mainstream retail.
— Joseph Young (@iamjosephyoung) November 30, 2021
By 2021, the number of active bitcoin addresses exceeded 1 million. Major corporations like Tesla and MicroStrategy started adding bitcoin to their balance sheets. Payment processors like PayPal and Square began facilitating BTC transactions, driving its adoption.
By November 2021, the leading cryptocurrency reached an all-time high of over $68,789 per coin, reflecting growing investor confidence. Technological advancements followed suit, activating the Taproot upgrade to enhance the coin’s privacy, scalability, and smart contract capabilities.
4/ Since the Taproot upgrade in November 2021, DeFi on BTC is not just possible, it’s already here.
BTC now competes with ETH in the #NFT / #DeFi markets.
You don’t have to ask me who wins this battle.
The best part?
You no longer need WBTC. You can use native BTC.
Next. 👇 pic.twitter.com/bVZLnUme9K
— Duo Nine ⚡ discord.gg/ycc (@DU09BTC) April 20, 2023
In addition, Visa collaborated with BlockFi to launch a bitcoin rewards credit card, rendering it even more accessible for everyday use. Consequently, active bitcoin addresses surged to over 1.3 million, with over 8% of Americans reporting cryptocurrency ownership.
These developments exemplify bitcoin’s rapid evolution and increasing integration into mainstream finance and commerce.
The road ahead
The forthcoming Bitcoin halving in 2024 is anticipated to drive the cryptocurrency’s price to new all-time highs. Even after the volatile movement and a sharp decline in price the digital asset saw since 2020, experts suggest it could reach or even exceed $100,000.
#StandardChartered says $BTC will hit $100k next year. Cites:
– Silicon Valley Bank collapse
– Fed interest rate hikes
– Regulatory benefits
– Bitcoin halving
What do you think… convinced? pic.twitter.com/DDWJ28yBOi
— Kim (@kimtalkscrypto) April 24, 2023
Historical data from prior halving cycles underpins this optimistic outlook. Each cycle has consistently resulted in a new all-time high for bitcoin.
The first halving cycle culminated in bitcoin reaching $1,170 (November 2013), followed by $19,400 in the second cycle (December 2017), and more recently, $68,789 in the ongoing third cycle (November 2021).
Bitcoin price prediction algorithms indicate that the digital currency will achieve $100,000 next year. The 2024 halving event will trigger the next significant bull run in the crypto market.
Additional factors beyond the halving are projected to contribute to bitcoin’s upward trajectory in 2024.
A prominent crypto analyst Tone Vays predicts that inflation, interest rates, and a potential recession will prompt people to lose confidence in the conventional financial system and turn to bitcoin as a more dependable store of value.
Markets are a Rollercoaster, So What’s Next?$SPX $BTCUSD #Bitcoin $OIL $GOLDhttps://t.co/7OUEq7nqu7
— Tone Vays (@ToneVays) April 20, 2023
Vays envisions bitcoin surpassing $100,000, potentially reaching $200,000 approximately a year after the 2024 halving.
While this prediction may appear exceedingly optimistic, industry figures such as BitMEX co-founder Arthur Hayes and Kraken CEO Jesse Powell have likewise expressed their belief that bitcoin could eventually achieve $1 million.
Crypto Daily News 📣
⚡Bitmex founder Arthur Hayes Believes That Bitcoin Might Reach $1 Million.
⚡Coinbase former CTO, Balaji Srinivasan Gambled That Bitcoin $BTC Will hit $1 Million In 90 Days.
⚡Global cryptocurrency market cap surpasses $1.2 trillion.
— Crypto N0oB 💎 (@stauseefahmed) March 20, 2023
In conclusion, the odyssey of bitcoin, from its inception as a fringe alternative to its current status as a recognized financial asset, demonstrates the transformative power of innovation and resilience.
As the world navigates the complex landscape of financial crises and economic uncertainty, Bitcoin’s potential to serve as a safe haven and an alternative financial solution takes center stage.