The recent banking crisis in the US and Europe has sparked a strong rally in Bitcoin, but other crypto assets have been unable to translate this action into their prices. A majority of the altcoins have underperformed the largest crypto asset in the near-term price appreciation.
In the last two weeks, Bitcoin’s price has jumped more than 40 per cent to $28,250 on Wednesday, March 22, 2023. The largest crypto asset was trading at around $19,950 on March 10, 2023. However, other major tokens including Ethereum, BNB, Cardano, XRP have failed to perform on a similar line.
Analysts said that bitcoin is always seen as a store of value and amid the banking crisis in some of the strongest economies of the world and gloomy macroeconomic sentiments, its safe-haven appeal has increased and investors are lapping up the digital token.
Edul Patel, Co-founder and CEO at Mudrex said that factors such as banking sector instability, high inflation data and reduced confidence in a dovish Federal Reserve have pushed the demand for Bitcoin, which is trading near its nine-month highs.
“Bitcoin can act as a hedge against inflation and a bet against the devaluing US dollar and investors prefer it over altcoins. Investor’s trust in Bitcoin as a secure store of value is reflected in its increasing value, rather than a general sentiment towards cryptocurrencies that rely heavily on their ecosystem fundamentals,” he said.
The dominance of Bitcoin in the total crypto market has increased to more than 46 per cent on Wednesday, according to the data from Coinmarketcap. The total market capitalization of Bitcoin is around $550 billion, while the crypto market is commanding a cumulative marketcap of $1.18 trillion.
Bitcoin has experienced a significant rally over the past few days. However, when looking at the overall crypto market cap, it has only increased by 8% to $1.17 trillion. This implies that there is a lack of significant fresh investment entering the market, said CoinDCX Research Team.
“The uncertainty surrounding stablecoins and illiquid assets in the banking sector has caused individuals to move from stablecoins to Bitcoin instead of depositing their money in banks,” it said. “The market direction will be determined by the outcome of Fed’s FOMC meeting.”
Bitcoin is also considered sensitive to changes in money supply, and as such, many have argued that the increase in the size of the Fed’s balance sheet is the key driver of the rally, said Rajagopal Menon, Vice President, WazirX.
“Last week, the Fed and its allies effectively bailed out the depositors of SVB. As part of this bailout, the Fed had to increase its balance sheet by $300 billion. The Fed printed 300 billion new dollars, given that Bitcoin was built in response to the 2008 bank bailouts. BTC’s price went parabolic in response to the SVB bailout,” he added.
Analysts said that Bitcoin is the oldest and most known crypto asset among investors. Interestingly, not only bitcoin, gold is also gaining momentum but its counterpart silver is unable to catch up with the rise.
New investors in the crypto space tend to gravitate towards the more established coins, such as Bitcoin over taking risks on relatively unknown Altcoins. The recent rise in Bitcoin’s price and the attention it’s been getting in the news may also be bringing in more mainstream investors and institutions, which would make it even more dominant on the market, said Menon from WazirX.
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