Bitcoin spiked above $26,000 following the release of a key inflation report Tuesday morning, riding a larger surge of 18% over a 24-hour period as traders bet on a cryptocurrency comeback.
Ether (ETH-USD), the second largest cryptocurrency, also rose more than 10% over the same period as did smaller cryptocurrencies Dogecoin (DOGE-USD), Polygon (MATIC-USD) and Polkadot (DOT-USD). All gave up some of their gains by midday; Bitcoin is currently trading at $26,000 as of 12 pm EST.
The turnaround in the crypto market coincides with new signs that inflation is cooling and government efforts to stabilize the banking system following the failures of Silicon Valley Bank, a lender to tech firms, and Signature Bank, which catered to the cryptocurrency industry. US officials announced a series of measures Sunday night to deal with the banking crisis, including a plan to ensure that all depositors at failed banks get their money back. Another bank that served crypto clients, Silvergate Bank, also decided to wind itself down last week.
The collapse of these banks created concern in the cryptocurrency world because of certain exposures to those institutions. The second largest stablecoin, USDC (USDC-USD), fell below its crucial $1 peg on Friday to a low of 88 cents by Saturday morning as the digital coin’s most recent “transparency report” showed its issuer, Circle, kept $3.3 billion of its cash reserves with Silicon Valley Bank.
“Bitcoin is getting a relief bid that seems driven, in part, by general risk-on sentiment following the depositor bailout at Silicon Valley Bank and Signature Bank,” Ben McMillan, chief investment officer with asset manager IDX, told Yahoo Finance.
Today’s surge was helped by an announcement that headline inflation for February’s Consumer Price Index came in line with analyst expectations, rising 0.4% over the last month and and 6% over the prior year in February. Core inflation prices, however, increased by 0.5% despite expectations for 0.4%. The 6% jump in inflation marks the slowest annual increase in consumer prices since September 2021.
Bitcoin (BTC-USD) and other major digital coins also attracted higher flows Monday after Binance founder and CEO Changpeng Zhao announced his firm, the world’s largest cryptocurrency exchange, would convert $1 billion of funds from the discontinued stablecoin Binance USD to “BTC, BNB and ETH.” The total market capitalization of crypto assets rose 12% over a 24-hour period to $1.14 trillion, according to Coinmarketcap.
The crypto ecosystem continues to be the “highest risk part of the market” according to Matthew Miskin, co-chief investment officer of John Hancock Investment Management. Miskin told Yahoo Finance his firm believes bitcoin’s Tuesday rally is “masking underlying risks” relating to the recent bank closures.
Edward Moya, senior market analyst with Oanda, told Yahoo Finance that he is skeptical bitcoin’s rally can last, calling Tuesday’s move an “overreaction to inflation data.”
Several traders and firms started placing bets on a comeback last weekend, when crypto values fell.
“There were some arbitrage opportunities around USDC and other stablecoins like Tether that traders in the market poured into,” Michael Safai, co-founder and partner of trading firm Dexterity Capital, told Yahoo Finance.
Safai said his firm was one among many who piled into the trade betting USDC wouldn’t fail though it was part of the firm’s regular “day-to-day trading strategies.”
On Saturday, 38-year old Doğu Tekinoğlu swapped $8 million worth of the stablecoin USDT for discounted USD coin, according to blockchain data verified by Yahoo Finance. That paid off after Circle said Saturday it would cover any shortfall in deposits lost from Silicon Valley Bank and regulators said Sunday that all depositors would get their money back. The stablecoin has since climbed above 99 cents per coin.
Tekinoğlu said his purchases have netted a profit. “Of course, none of it is 100% guaranteed but that’s life in crypto. Turning pure speculation into profit,” Tekinoğlu told Yahoo Finance.
David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers
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