The banking crisis in the United States and the big-ticket collapse of Credit Suisse have resulted in a broader stock market sell-off this month. Moreover, economists have identified an additional 186 banks in the U.S. that could fail (similar to Silicon Valley Bank) if 50% of uninsured depositors withdraw their funds. 🚨
To avert a banking crisis, the Federal Reserve has already pumped in $165B to shore up the liquidity of these financial institutions. And, according to JPMorgan, this figure could move much higher to $2T, especially if the macro situation worsens. 💰
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But these quantitative easing measures may lead to hyperinflation, a period where prices of commodities and services move significantly higher, and the value of the local currency (in this case, the USD) depreciates. To hedge against these risks, investors are looking at various asset classes, such as gold. Historically, gold has been viewed as a store of value and a hedge against inflation. In the last six months, gold prices have surged by almost 20%. 👀
Bitcoin is another asset that has gained significant momentum following the banking collapses. Often referred to as digital gold, Bitcoin is considered anti-inflationary as the total supply of the cryptocurrency is capped at 21 million. 📌
Additionally, the correlation between cryptocurrencies and the S&P 500 is at its lowest in 18 months, which suggests Bitcoin may finally be decoupling from stocks. The bank runs this month have also driven BTC prices 40% higher ⬆️, since March 10. The recent uptick in BTC prices has surprised market participants but it might prove to be significant especially if the digital asset’s utility increases at the global level. Bitcoin was created as a decentralized digital asset, and the ongoing turmoil surrounding banks is acting as a tailwind for the world’s largest cryptocurrency.
Though the rise of Bitcoin as an alternate asset class could eventually lead to increased funding across the Blockchain and Web3 space, it hasn’t quite been the case yet. A report from business intelligence firm Crunchbase states Web3 startups backed by venture capitalists raised $1.3B across 233 deals in the first two months of 2023. In the first two quarters of 2022, VC-backed funding in the Web3 segment stood at $17.5B. These numbers are not surprising, given the meltdown in the crypto space last year. Unfortunately, it will take more than a few weeks (or months) of crypto price upswings, and an improvement in macro conditions for VC funding to return to 2021 levels. ⬆️
VC funding was driven by easy access to capital at a low cost in 2021. But the federal reserve is unlikely to be as liberal with money supply due to elevated inflation levels, resulting in lower funding opportunities for Web3 and Blockchain startups this year. 🏦
Will the crypto winter come to an end with the Bitcoin halving, and an improvement in the macro environment by 2024? 🧐