The cryptocurrency market has been on a wild ride in recent weeks, with total market capitalization increasing by a staggering 26% in just seven days, reaching $1.16 trillion on March 17. While Bitcoin was the biggest winner among the top 20 coins, up 31.5%, some altcoins gained 50% or more during the period.
This surge in cryptocurrency prices occurred as the United States Federal Reserve was forced to lend banks $300 billion in emergency funds. Nearly half of the money went to failed financial institutions Silicon Valley Bank and Signature Bank and was used to pay uninsured depositors. The remaining $153 billion was obtained through a long-standing program known as the “discount window,” which allows banks to borrow funds for up to 90 days.
While appearing to protect the banking sector, additional funding for the Federal Deposit Insurance Corporation and credit facilitation using Fed resources ultimately creates a “false sense of confidence,” according to billionaire investor Bill Ackman. The $30 billion plan devised by U.S. regulators to avoid a major liquidity crisis in First Republic Bank “raised more questions than it answers,” said Ackman, who manages the hedge fund Pershing Square. Furthermore, Ackman stated that “half measures don’t work when there is a crisis of confidence.”
As the banking crisis worsened, Warren Buffett, the co-founder and largest shareholder of Berkshire Hathaway, saw his holdings rapidly deteriorate. Berkshire Hathaway, for example, is the largest holder of Bank of America stock, which has fallen 15.5% year-to-date. This position alone has cost Buffett’s investment vehicle $5.2 billion. Buffett, a well-known cryptocurrency critic, has stated that he has no interest in Bitcoin, even if the entire float is offered at $1,300. The 91-year-old, with a net worth of around $102 billion, claimed that Bitcoin doesn’t produce anything whereas farmland and residential real estate do. However, Bitcoin’s price increased by 31.5% in the six months preceding March 17, while Berkshire’s stock increased by just 5.8%. So, for the time being, the so-called “rat poison” — as Buffett once described Bitcoin — is outpacing his own financial management firm.
Despite the recent turmoil, traders remain extremely confident about market conditions as the demand for neutral-to-bullish call options has increased since March 12, indicating the growing risk appetite of derivatives traders. The gap favoring call options has stabilized at 2:1, indicating that professional investors are unconcerned following the March 17 rejection of the $1.16 trillion market capitalization level. In the end, data indicates a strong conviction for Bitcoin’s support at $26,000, so bulls are in a stronger position to continue their rally.
In addition to Bitcoin, many altcoins have seen significant gains recently. Conflux’s CFX gained 97.6% after KuCoin Ventures announced a $10 million investment in stablecoin issuer and blockchain-based payment service provider CNHC, which is available on the Ethereum and Conflux networks. Stacks’ STX rallied 75.7%, as the network is scheduled to undergo an upgrade on March 20 introducing Stacks 2.1, with new features and improvements. Immutable X’s IMX rose 71.7% following a much-anticipated announcement of an upcoming partnership reveal scheduled for March 20.
Overall, the cryptocurrency market remains volatile and unpredictable, but recent events have highlighted the growing role of cryptocurrencies in the global financial system. As traditional financial systems continue to struggle with liquidity issues and failed institutions, many investors are turning to digital assets as a safe haven and a store of value. Only time will tell how this market will evolve, but one thing is clear: cryptocurrencies are here to stay.
Disclaimer: The views, thoughts, and opinions expressed in this article are solely those of the author and do not reflect the views or opinions of any entity or organization mentioned herein.