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Crypto-versed: crypto prices jump amid bank crises

Traders have sought out anti-fiat assets, amid systemic risks in banks and bets on interest rate cuts.

Cryptocurrencies have surged, as instability in the banking system and expectations of interest rate hikes are unwound.

In this week’s Crypto-versed, we pinpoint the drivers of the rally in crypto assets and examine the price action of three cryptocurrencies.

The banking crisis and rate expectations support crypto

Despite being embroiled in the situation, crypto assets have benefited from the instability in the global banking system. While initially at the centre of the sell-off in markets, primarily due to the failure of crypto-lenders Signature Bank and Silvergate Capital, the risk of broader financial contagion in mainstream banks has bolstered crypto prices.

With stress in regional US banks emerging, along with the practical failure of Credit Suisse, crypto has surged as a bet against the fiat currency system. Bitcoin, having been conceived in response to the last major financial crisis in the 2000s, has benefitted in particular, climbing above $28,000 in recent days.

As can be seen in the Google trends data below, searches for “financial crisis” have increased to levels not seen since the pandemic-panic in March 2020.

Source: Google Trends

A separate but related dynamic that’s bolstering the appeal of crypto assets is the expectation that the cracks appearing in the global financial system will lead to an imminent pause, then cuts to global interest rates. Both because of what rate hikes are doing to bank balance sheets, along with the knock-on effect that will have on economic activity, Fed Fund Futures are implying one further rate hike, before a definitive policy pivot from the Fed.

In contrast to the start of March, and following Fed Chair Jerome Powell’s infamous testimony outlining the need for even tighter monetary policy, Eurodollar futures are implying that the Fed Funds Rate ought to end the year around 4%.

Source: CME Group

Three cryptos to watch

Here are three cryptos to keep an eye on as the situation in the global banking system unfolds.

  • Bitcoin

Bitcoin has surged, as the crypto benefits from the anti-fiat, rate-cut story circulating the markets. The daily RSI is suggesting the crypto is overbought, although momentum is skewed to the upside. Its price has pushed through resistance around $25,000 and is now testing $28,500. A break of that level could drive a run toward $30,000, while support might be around $25,000.

Bitcoin daily chart

Source: IG
  • Ether

Ether’s price has run higher in the past week, as momentum in the short-term turns to the upside. The crypto is seeing sellers emerge above $1800, while support appears to be forming around $1730. The next level of resistance looks to be around $2000, while support below $1730 could be around $1600.

Ether daily chart

Source: IG
  • Dogecoin

While appreciated in recent days, Dogecoin is a crypto that hasn’t experienced the same tailwinds from the anti-fiat, rate-cut theme. It perhaps reflects the lack of any appetite to speculate, with Doge typically acting more like a gambling chip rather than a crypto asset with true value.

Dogecoin daily chart

Source: IG

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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