Examining the correlation between the US banking crisis and Bitcoin's performance in 2023
In recent news, several United States regional banks' shares have taken a significant hit in after-hours trading despite Federal Reserve Chairman Jerome Powell's declaration that the banking sector is sound and resilient. PacWest Bancorp was the hardest hit, falling by over 50% after it was reported that it would explore strategic options on May 4, raising concerns about a potential banking crisis. Meanwhile, Bitcoin's price has surged over the past few weeks, and some people are wondering if there's a connection between the two events.
Bitcoin's price has jumped around 70% in 2023 so far, following a difficult 2022 that saw widespread collapses in the industry that negatively affected digital currencies' demand. Despite analysts predicting that Bitcoin's losing streak would continue in 2023, it has been performing well. In March, the cryptocurrency recorded its second-highest monthly gain in 17 months, jumping 23% and breaking above the $24,000 barrier.
On the other hand, the S&P 500's financial sector fell 9.7% in March due to the ongoing banking crisis, which saw First Republic Bank become the latest addition after facing a liquidity shortfall that forced JP Morgan to take over its operations. This came after customers had initiated deposits worth over $100 billion since rating agencies began downgrading its credit ratings in March.
During the same time, Silvergate Bank, whose CEO had invested in Bitcoin, went belly up after customers initiated mass withdrawals. This news, along with high-profile bankruptcies in the crypto sector, saw Bitcoin's price fall sharply, slipping below the $21,500 support mark. However, when Silicon Valley Bank and Signature Bank collapsed, Bitcoin soared by over 40% between March 11-24, heading toward the $31,000 mark. Currently hovering around $29,000.
The correlation between Bitcoin's gains and the banking crisis is still unclear. However, some people believe that the current situation could have a positive impact on Bitcoin's future, as more people turn to cryptocurrencies as an alternative to traditional banking.