Bitcoin Makes A Comeback

I’ve never been a crypto cuddler and I probably never will be.

But in the past month Bitcoin has jumped 63%!

Its gone from US$19,000 to US$31,000 in a few fast weeks.

Not bad hey.

So why’s it running all of a sudden?

In March, Silicon Valley Bank, Signature Bank and Credit Suisse bank all collapsed within a fortnight of each other.

This frightened the daylights out of depositors and created a huge run on the banks.

Here’s an example of how bad it got…

When news broke that Credit Suisse was in trouble, $100,000,000,000 (one hundred billion) in deposits were scheduled to leave Credit Suisse the Friday before it disappeared.

Fortunately the Swiss Government jumped in and reassured depositors their money was safe. If they didn’t, the knock-on effects around the world would have been catastrophic. Possibly worse than the collapse of Lehman Brothers in 2008.

You see, here’s the thing…

Money = Feelings.

Meaning, money flows where confidence goes.

And right now, there’s a net outflow of confidence amongst retail depositors (mums and dads), across US and European banks. [1]

Simply put, depositors have been quietly taking their money out of the banks and putting it into guess where…?

That’s right, Bitcoin.

The punters believe Bitcoin is a safer bet than the banks.

i.e. they’re happy to take it out of a regulated system and place it in a dark pool thats unregulated and unsupported by the government.

But wait, there’s more.

Retail investors have also been tipping their deposits into the stock market thinking it too is safer than the banks.

Hence the reason the markets are up approximately 10% in a month.

And if all this behaviour by retail investors seems irrational, just remember…money = feelings.

But wait, it gets better.

While retail investors have been buying, institutional (corporate) investors have started selling and putting their money back in the bank!

So who’s right, retail or institutional investors?

Both.

Retail investors are right to assume we’ll get another banking crisis because of high interest rates and a growing list of bad debtors.

But another crisis means the markets will react negatively.

Therefore the institutional investors are also correct to take some money off the table as long as they place it with a first tier bank.

BTW…I’m specifically talking about US banks, not Australian banks. Oz banks are more tightly regulated than most of their northern hemisphere peer group.

The irony is this. Depositors are creating the very thing they’re trying to avoid, a crisis.

As depositors withdraw their money, the banks have less to lend out. Therefore, if we get another banking crisis, it won’t be so much about banks falling but a contraction in lending.

Maximum growth happens at the speed of trust.

Which makes me wonder. How long will investors cuddle their crypto before they let go again.

Have a great weekend!

Adam

[1] Bloomberg, Apollo Chief Economist

Back paddock – congratulations to Sophie Delezio on the announcment of her engagement.

Remember her? She was badly injured after a car crashed into her day care centre in Fairlight, Sydney in 2003. She suffered third-degree burns to 85% of her body and was hospitalised for almost a year. She lost both feet, a number of fingers, and an ear. The poor thing was then involved in a second serious car crash in 2006.

Congratulations Sophie, you little ANZAC!