Bitcoin (BTC) is benefiting from instability in the financial system, falling inflation allowing the Federal Reserve to become less hawkish and a regulatory overhang that has hit stablecoins, crypto services provider Matrixport said in a report Thursday .
“If these three trends continue, bitcoin prices can stay high and continue to rise,” wrote Markus Thielen, Head of Research.
Matrixport says “investors have now woken up,” noting that the Fed’s rate policy has severely damaged some investment portfolios and threatened the economy’s financial stability.
There are several flights on quality taking place at the same time, the note said.
There has been a shift from higher beta – or more volatile – cryptocurrencies to bitcoin, along with a transition from stablecoins, which are less volatile. When Paxos’ Binance USD (BUSD) was under regulatory scrutiny, money moved from BUSD to BTC, and when Circle’s USD Coin (USDC) lost its peg, there were flows of USDC. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, such as the US dollar or gold.
In addition, the Fed’s policy of tightening interest rates has caused Treasury prices to fall, reducing the value of bank portfolios. The collapse of Silvergate (SI), Silicon Valley Bank (SVB) and Signature Bank (SBNY) rocked financial markets last week.
Flight to quality is when investors sell assets they perceive as riskier and buy safer assets.
Potential classification as a security has also become an overhang for many cryptocurrencies, the note added.
“While there appears to be a clear path to regulation, there is a specific understanding that some can escape regulation,” the report added, noting that regulators and central banks have classified Bitcoin as a commodity, not a security.
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