Bitcoin climbed past the $28,000 level over the weekend as investors rediscover its appeal as an alternative banking system.
On Monday, the cryptocurrency had pulled back a bit. Bitcoin fell more than 2% to $27,705.23, according to Coin Metrics. Earlier in the day, it hit $28,554.07, it’s highest level in nine months. Meanwhile, ether fell 3.5% to $1,765.60.
The weekend rally in bitcoin came amid continued turmoil in the global banking sector. On Sunday, UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.2 billion) in a deal partly brokered by the Swiss regulators looking to stem contagion.
“Bitcoin continues to trade like a leading risk-on asset, like it has for the past two years,” said James Lavish, managing partner at the Bitcoin Opportunity Fund. “The rescue of Credit Suisse has put out a large credit fire … this emboldens bitcoin buyers who are now anticipating the Fed slowing the increase in rates and signaling a coming pause this week.”
As of Monday afternoon, there is about a 72% chance of a quarter-point increase by the Fed, according to CME Group’s FedWatch tool. The other 28% anticipates there will be no hike and that Chairman Jerome Powell may start to ease his aggressive tightening campaign due to the emerging financial contagion.
Bitcoin is coming off its best week since January 2021, which was right before the first bull run that year, while ether just posted its best weekly gain since August 2021. The two are up for the year by 67% and 46%, respectively.
Advocates of bitcoin have often dubbed it “digital gold” referring to it as a store of value, particularly in moments of global turmoil, and one that is uncorrelated with other asset classes.
Now, there are signals bitcoin’s price movement is beginning to decouple from stocks, for now. The cryptocurrency’s correlation with the S&P 500 is now at its lowest since September 2021, after reaching its highest in 2022, according to Coin Metrics.
“If one looks at the history of bitcoin and why it was created in the first place, it was precisely for events like this where the current system shows signs of weakness and hence owning an uncorrelated asset helps,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC. “Over the years, this argument of bitcoin being an uncorrelated asset class has been debated quite a bit, but we are now potentially seeing that viewpoint being vindicated.”
Bernstein analysts Gautam Chhugani and Manas Agrawal argued in a Monday note that the market has been trading closer to its “uncorrelated non-sovereign roots” since the demise of FTX and the market structure “feels a lot healthier, with no more distortions caused by FTX and Alameda.”
In contrast to bitcoin and ether’s year-to-date gains, returns on gold, the dollar, U.S. equities and bonds were “less impaired last year, but have not bounced back as sharply” either, and tech-dominated indices have performed only marginally better when high growth assets were beaten down during the rising rate cycle, they added.