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Bitcoin barrels past banking sector troubles toward one of its biggest weekly gains

A Bitcoin ATM sits in a kiosk in Barcelona on March 9, 2022.  (Angel Garcia/Bloomberg)
By Sidhartha Shukla and Akshay Chinchalkar Bloomberg

Bitcoin is on course for one of its biggest weekly gains of recent years, bolstered by wagers on eventual cuts in interest rates as the token rides out convulsions in the banking sector.

The largest digital asset is up about 25% since the start of Monday. It’s had a weekly jump of at least that much only 10 times in the past five years, data compiled by Bloomberg show. Smaller coins like Ether and Dogecoin are also rallying.

The collapse of three regional U.S. lenders and wobbles at Credit Suisse are strengthening expectations of an end to the monetary tightening that pummeled crypto in 2022. The ructions are also reviving claims from Bitcoin’s most ardent supporters that the token is an alternative to fiat currency.

“The current turbulence within the U.S. banking sector, potentially leading to a more relaxed Federal Reserve stance, reinforces Bitcoin’s dual role as a hedge against traditional finance and a credible risk asset,” said Kunal Goel, a research analyst at digital-asset intelligence firm Messari.

Bitcoin rose as much as 8.8% on Friday and was trading at about $26,635 as of 3:02 p.m. in New York. Second-ranked Ether added roughly 4.4%. U.S. stocks moved lower while Treasuries continued to climb after a report on major banks putting restrictions on trading with Credit Suisse capped a tumultuous week for global markets.

Financial markets anticipate a peak in the Fed’s benchmark interest in May to fight elevated inflation, followed by around 70 basis points of cuts this year to support economic growth.

“Any sign of interest-rate cuts should push funds to riskier assets, which is likely to be enough to bring more institutional funds into the crypto market, regardless of whether macro traders understand or believe in the longer-term Bitcoin investment thesis,” wrote Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.

The digital-asset sector is also contending with a bruising regulatory clampdown in the U.S. in the wake of the collapse of the FTX crypto exchange. The ramifications of a temporary de-pegging in USD Coin – or USDC – over the weekend are also filtering through crypto markets. USDC is the second-largest stablecoin, a type of token that’s supposed to hold a constant $1 value.

The U.S. Securities & Exchange Commission is doubling down on the contention that most digital assets are securities, a designation that requires greater investor protection and may make tokens harder to trade. However, U.S. regulators generally agree that Bitcoin isn’t a security.

That regulatory dichotomy is helping Bitcoin, while nervousness about stablecoins has led some investors to shift into the largest digital asset, according to Markus Thielen, head of research at Matrixport.

Bitcoin now accounts for 43% of overall crypto market value, the highest proportion since June 2022, data from CoinGecko shows.

The token has climbed about 63% so far this year and is in touching distance of the highest level since June 2022. But it remains a long way off its record of almost $69,000 from November 2021.