What happened
Don’t look now, though Bitcoin (BTC 1.86%) and other large-cap cryptocurrencies made big moves over the weekend. As of 8:30 a.m. ET, Bitcoin, Solana (SOL 6.55%)And The sandbox (SAND -1.06%) are up 5%, 14% and 8.9%, respectively, since 4:00 p.m. ET Friday. These moves have seen Bitcoin surpass the $28,000 mark, its highest level in nine months.
This move also comes at a weekend when more drama was unfolding in the banking sector. Swiss credit was bought by another Swiss bank UBS Group in one of the most shocking consolidations among major global banks since the Great Recession.
so what
This $3.3 billion deal for Credit Suisse (less than half of Friday’s close) includes a number of liquidity provisions and guarantees. However, this deal also essentially wipes out $17 billion in Additional Tier 1 (AT1) bonds, raising market concerns about the health of the $275 billion AT1 bond market in Europe.
The resulting moves by central banks around the world to coordinate US dollar swap arrangements to add liquidity to the global financial system date back to times of serious global economic stress (namely, the pandemic and the Great Recession). So the US dollar showed weakness this morning and equity markets should open roughly unchanged.
Today’s rise in crypto prices appears to reflect a significant subset of investors’ view that digital currencies may have some value as a hedge against potential currency pressures in the U.S. and other developed economies.
What now
Whether this safe haven view is justified remains to be seen over time. However, bitcoin has traditionally been viewed as an asset class that should hold up relatively well given its size and decentralized nature in times like these.
For Solana and Metaverse crypto project The Sandbox, the outsized gains investors saw over the weekend appear to be related to these projects’ higher risk status in the digital asset space. With most cryptocurrencies picking up steam over the weekend, it probably comes as no surprise to see higher-risk digital assets making bigger gains during this uptrend.
I remain uncertain to what extent contagion concerns surrounding the global financial system will remain a bullish catalyst for major cryptocurrencies. But for those who have diversified into this asset class (at least in part) due to the diversification and potential hedging these cryptos offer, this trade has worked well so far.
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