By George Prior
The Silicon Valley Bank and Signature Bank collapses are a “springboard event” for Bitcoin as investors around the world look for safe havens, alternative currencies, and weigh the likelihood of a period of lower interest rates.
This is the assessment from Nigel Green, CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, as the cryptocurrency soars in price as the second and third biggest bank failures in US history spook investors across the globe.
He says: “Bitcoin is up as much as 20% during a historic banking crisis.
“It’s acting as a safe haven asset as the collapse of tech-focused Silicon Valley Bank sparks fears across Wall Street of contagion in the banking system which many say was being crippled by a relentless agenda of interest rate rises.
“Global financial stocks have already shed $465 billion in two days as investors reduce exposure to lenders. There are fears that financial institutions could be hit from their investments in bonds and other instruments on the back of the SVB concerns.
“This isn’t the first time that Bitcoin has shown some characteristics of a safe haven asset during times of economic uncertainty. During the pandemic in 2020, Bitcoin saw a surge in demand as investors sought alternative assets to protect their wealth from the economic fallout.”
The emergency measures that regulators announced in a joint statement from the Treasury and the Federal Reserve also appear to have served to fuel investor interest in alternative currencies to the dollar.
The measures included that depositors with the failed bank would have access to all their money from Monday morning. Banks will also now be permitted to borrow essentially unlimited amounts from the Fed for the next year, in order to stop financial institutions from having to sell those investments that have been losing value because of the Fed’s aggressive interest rate hike agenda.
“The SVB rescue package is essentially a new form of quantitative easing (QE),” says Nigel Green, referring to the bond-buying programme used by governments around the world to stabilise the financial system after the 2008 crash and later the pandemic.
“QE increases the supply of the dollar in circulation. This can lead to a decrease in the value of the US currency relative to other currencies, as the increased supply of currency can reduce its purchasing power.
“Inevitably, this pushes investors to look for alternatives, such as Bitcoin which has a limited supply.”
The US dollar has reigned supreme for more than 75 years. But there are indications that the world could gradually be shifting away from a dollar-dominated system.
“This is because astronomic levels of debt, and the enormous, ongoing amount of money printing to monetise these debts, have caused the considerable drop in the long-term value of the global reserve currency,” notes the deVere CEO.
“Investors are therefore looking for alternative currencies, such as cryptocurrencies. Moving forward, these will increasingly compete with traditional, fiat ones and this will help trigger the decreasing dominance of currently leading international currencies.”
On the back of looming financial stability risks, deVere Group now expects the Federal Reserve to pause its plan for continuing aggressive interest rate hikes.
“Can there be anything more deflationary for the Fed than the second and third biggest bank failures in US history?” asks Nigel Green.
“We expect the stress in the banking sector, and the wider impact on confidence, now will give the central bank cause for pause on its rate hike program – which is bullish for Bitcoin.”
Lower interest rates make borrowing cheaper, which can lead to increased spending and investment, which could lead to increased demand for the world’s largest crypto as investors seek alternative assets with potential for higher returns.
“The fallout of the banking crisis appears to serve as a launching point for a larger goal for Bitcoin. It’s a historical springboard event.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of offices across the world, over 80,000 clients and $12bn under advisement.
