A crypto vet’s wild Bitcoin bet

A crypto vet’s wild Bitcoin bet

All eyes are trained on the Federal Reserve this week as they announce rate-hike plans amid March’s banking sector turmoil. [Tanarch via Getty Images]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Bitcoin just hit a nine-month high. This comes as the banking sector faces its worst crisis in 15 years.

A crypto industry vet is betting BTC hits $1 million in 90 days. Balaji Srinivasan’s Bitcoin wager is a bet against the U.S. dollar.

Noteworthy numbers. The percent increase in downloads for leading crypto apps and other key stats to know this week.

MARKET UPDATE

Why did Bitcoin just hit 2023 highs in the wake of a bank crisis?

So far this month, the financial system has witnessed the collapse of three large American banks (Silicon Valley Bank, Signature Bank, SIlvergate Bank); the emergency merger of global banking titan Credit Suisse, ongoing volatility in bank stocks (see First Republic Bank) and increasing anxiety regarding how far trouble might spread. Bitcoin, meanwhile, has responded by rallying nearly 40% since March 10. After a long period in which the leading cryptocurrency by market cap seemed heavily correlated with U.S. equities, some analysts are now speculating that continued trouble with banks could send crypto markets even higher. Let’s break it down. 

Bitcoin’s price reached a nine-month high around $28,600 on Tuesday, up 70% for the year.

Since news broke about Silicon Valley Bank’s issues on March 9, Bitcoin has been on a tear, revisiting the $28,000 level for the first time since last summer. 

Multiple factors are aiding Bitcoin's rise, including the Federal Reserve’s move to inject $300 billion into the economy to backstop struggling banks. Historically, as more money has entered the economy, excess cash has boosted risk assets, including crypto (this was a major propellant of the 2021 bull run) At the same time, investors are also hoping the Fed will slow the pace of its rate hikes, which could also bolster crypto prices.

BTC’s rally points to Bitcoin’s core narrative as a resilient store of value.

Over the last few weeks, the foundational idea that Bitcoin operates outside the traditional financial system has been tested — especially after crypto grew correlated to equities markets in the last several years. But as banks have failed, BTC has consistently rallied, significantly outperforming the stock market. 

According to several institutional analysts, BTC’s rally reflects investors fleeing to safety amid banking uncertainty. Coinbase’s head of institutional research, David Duong, noted in a recent report that blockchain technology and crypto are currently proving themselves as a viable alternative to the fiat system. “We believe more people now appreciate the fundamental value proposition of having an alternative to the points of failure inherent in the traditional financial system,” Duong said. 

Meanwhile, Bernstein analysts called the banking sector jitters “the perfect setting for Bitcoin, Ethereum and the rest of the decentralized-financial system,” to stand apart from the centralized banking system. The firm also noted that as more institutional money re-enters the crypto market, prices could push higher. 

What does Bitcoin’s performance mean for the rest of the cryptocurrency market?

Since the banking turmoil got underway, Bitcoin’s share of the total cryptocurrency market cap has risen from 42% to 48%, further solidifying its dominance as crypto investors leave riskier coins for the original cryptocurrency, a so-called “flight to quality.

Additionally, for the first time in nearly two years, investors are betting that Bitcoin is going to be more volatile than Ethereum and other alt coins as increased BTC trading activity is linked to its haven asset narrative. Whereas Ethereum, which saw its market share drop 1%, is more commonly viewed as a proxy for development activity in the crypto market rather than a store of value.

Why it matters... Bitcoin is showing incredible resilience amid major macroeconomic uncertainty, leading some to argue that the original cryptocurrency is emerging as a clear winner of this banking crisis — an outcome that underscores the promise that crypto represented for many supporters at its inception. Or as ARK Invest’s Cathie Wood wrote in her firm’s newsletter, “Crypto is a solution to the failure, the opacity, and the regulatory lapses in the traditional financial system.” 

BIT BET

A crypto industry veteran bets big on Bitcoin surging to $1 million

It’s been a while since the crypto market heard analysts and pundits making optimistic predictions about Bitcoin’s price mooning imminently to six- and seven-figure benchmarks. But over the weekend, crypto veteran (and former Coinbase CTO) Balaji Srinivasan caused a stir on Twitter by making two separate million-dollar bets that the price of BTC would rocket all the way up to $1 million in 90 days. So why is Balaji confident that BTC will see a 3,400% surge in just three months? Let’s dig in.

Like many wild crypto storylines, this one started on Twitter. 

After Balaji tweeted concerns about hyperinflation — in which U.S. dollars would rapidly lose value — he found himself publicly entering into bets with two hyperinflation skeptics who would each receive $1 million from him if the price of BTC doesn’t crack $1 million by June 17.

Balaji’s bet is as much about the dollar as it is about Bitcoin. 

Ongoing banking crises at Silicon Valley Bank and beyond have highlighted the economic bind the U.S. finds itself in. The Federal Reserve is fighting inflation (which their pandemic-era stimulus likely exacerbated) by rapidly raising interest rates, which is causing banks to falter due to a combination of the rising-rate environment and risk-management errors. As a result, the Fed may have to inject more money (J.P. Morgan notes this could be up to $2 trillion) into the economy if more banks stumble. 

The concern is that this is a vicious cycle that will rapidly devalue the dollar, prompting many, per Balaji, to once again turn to Bitcoin as a hyperinflation hedge, since its supply is limited to 21 million and no central party controls it.

Balaji argues the world economy could enter a rapid “hyperbitcoinization” phase.

In this phase, people, companies, and even countries quickly flock to BTC to protect wealth as inflation starts to spiral — hence the 90-day window of his bet. But why so quickly? Balaji likens the pace to the viral bank run of SVB that saw customers, watching the saga unfold online, withdraw $42 billion in just two days — but in this case, the crisis would be a massive loss of confidence in the Fed and the dollar (yikes!) during which “the world redenominates on Bitcoin as digital gold.”

The bet elicited a range of responses from the crypto community. 

Venture capitalist Adam Cochran called the bet “unrealistic,” while crypto newsletter Milk Road, after noting ”we’re big fans of Balaji and think he’s brilliant,” declared it “one of the dumbest bets we’ve ever seen.” 

On the other hand, some prominent voices on crypto Twitter observed that “there’s a very reasonable chance Balaji is at least directionally correct;” or as Axios Crypto put it, “he could lose the money and still win.” A few commentators, meanwhile, suggested the bet is just a money-making stunt, a claim Balaji strenuously denies. (He says his goal in making the bet is “getting innocents to Bitcoin lifeboats.”)

Why it matters… While the odds of Balaji’s bet are incredibly long, his now-highly-publicized wager has refocused attention on Bitcoin as a safe haven against inflation, a narrative that was called into question as global and crypto markets sank last year. As for the more severe financial system outcomes of his argument, we’ll have a better idea in about three months' time.

NUMBERS TO KNOW

$4 billion

The amount of digital asset deposits at Signature Bank that were not included as part of the shuttered financial institution’s sale to Flagstar Bank by U.S. regulators, adding weight to the claim that the bank was closed over its connection to crypto.

$2.2 billion

The amount of money that former FTX CEO Sam Bankman-Fried received, in the form of payments and loans, from Alameda Research and other parts of the firm’s crypto businesses, according to a recent court filing from FTX’s new administrators. They also noted that for creditors, the “amount and timing of eventual monetary recoveries cannot be predicted at this time.”

15%

The percent increase in downloads of the top 10 crypto apps for exchanges and wallets, according to app data provider Apptopia, following the collapse of Silicon Valley Bank, which suggests that consumers were looking for alternatives to traditional banks amid the current turmoil.

AROUND COINBASE

Tips to protect against phishing, Coinbase’s crypto advocacy campaign, and more company news

  • Coinbase’s new crypto advocacy campaign, Crypto435, aims to grow the crypto community in all 435 Congressional Districts across the U.S. As part of the initiative, Coinbase will empower the Crypto435 community with information about how to contact specific politicians in their local districts, what those politician's records on crypto are, tips for making your voices heard in D.C., and more. Become an advocate today by joining here.

  • The upcoming Shanghai and Capella Upgrades to the Ethereum network (collectively known as Shapella) will enable unstaking for the first time since ETH staking was introduced in December 2020. Here’s what you need to know.

  • If you’re due for some digital spring cleaning to improve your password hygiene and help protect your online presence, check out some security tips and a new guide about how to best protect yourself from phishing attacks.

DISCLAIMER

This material is the property of Coinbase, Inc., its parent and affiliates (“Coinbase”). The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Coinbase or its employees and summarizes information and articles with respect to cryptocurrencies or related topics that the author believes may be of interest.

TOKEN TRIVIA

What is the most secure form of two-factor authentication?

A

Authenticator apps

B

Hardware keys

C

SMS codes

D

Face ID

Find the answer below.

Trivia Answer

B

Hardware keys