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September 01, 2020 1:28pm
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How Bitcoin is benefiting from the banking crisis

The crypto winter that battered Bitcoin prices appears to be thawing as the U.S. banking crisis roils investors and calls into question the Federal Reserve's rate hike strategy.

Bitcoin has emerged as an unlikely benefactor as investors flee banking stocks amid contagion fears following the collapse of Silicon Valley Bank

The largest cryptocurrency by market value topped $27,000 over the weekend, the highest level since June. For the year, it has gained over 60%, making it one of the best-performing asset classes of the year, blowing past the S&P 500’s 2% gain through Friday. 

The upward move may be tied to an unexpected shift in the Federal Reserve’s battle plan to bring down inflation. 


"A strange element to the rally is it comes alongside recent troubles in the banking sector, particularly in two banks [Silicon Valley Bank and Signature] that were heavy lenders to the crypto industry. What does seem to be a major tailwind for bitcoin has been the rapid change of Fed expectations" Jim Iurrio of TJM Institutional said on CME Active Trader. 

As of Sunday, the CME’s Fed Watch Tool shows 38% of the market is expecting the Fed to pause interest rate hikes at Wednesday’s meeting, with 62% expecting a smaller 25 basis point hike. Zero participants expect a rate cut. The decision will come at 2:30 p.m. ET, followed by Chairman Jerome Powell's press conference. 

Ark Invest founder, CEO and CIO Cathie Wood told "The Claman Countdown" Friday bitcoin is benefiting from banking fallout and a recent shift for the Fed to pause its rate hike strategy and reverse course. 

"Recently, when we felt Coinbase was so misunderstood, and when it seemed like the banking regulators were blaming crypto for what's going on right now — which is not the case at all at — we actually thought, ‘Nope, we think crypto assets could be a beneficiary, a flight to safety,'" she explained. 

"And we also see, in the case of Coinbase, it is, despite what a lot of people think, it is trying to be as regulatory compliant as possible with this new asset class, while, at the same time, educating regulators on what this new asset class is all about." 

Other crypto is also benefiting, including Ethereum, which has advanced over 40% this year. 

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