Why Another Bitcoin Boom Could Be the Key to Institutional Adoption. Should You Buy In? Amid bank uncertainty, another Bitcoin boom could lead to institutional adoption.
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As bitcoin rises amid the banking turmoil, armchair economists, politicians, Twitter heads and blockchain industry leaders have their takes on the factors behind the original cryptocurrency's recent jump. Between March 10 and March 22, the price of BTC shot up 45% from $19,700 to over $28,600.
It's hard to ignore the fact that this (somewhat) unexpected jump coincides with the Silicon Valley Bank and Signature collapses and Credit Suisse's restructuring under its former competitor, USB. Though not nearly on the magnitude of Lehman Brothers and the like, we're experiencing the first major banking crisis since 2008. Since bitcoin's entire purpose is to offer an alternative to banks, it will be instructive to observe crypto markets in the coming months. That's even before considering inflation, which in theory, is supposed to drive bitcoin adoption as a safe haven asset.
And there is precedent to bitcoin breaking from broader markets. At the onset of the COVID-19 pandemic in March 2020, bitcoin dropped from over $9,000 on March 6 to $4,826 by March 12. The drop coincided with a stock market crash that led some to announce the end of bitcoin.
How could a "safe haven" asset react to market shocks the same way stocks do? Of course, the price eventually returned to its pre-COVID levels by July of that year and then began steadily taking off in late 2020 before reaching $61,195.3 on March 13, 2021.
It's still a little premature to say that bitcoin is on a similar trajectory. A few influences contributed to the rise in BTC's value during the COVID era, most notably the stimulus checks that pumped cash into the economy. Other factors such as the NFT boom, play2earn and the bitcoin halving event helped expand crypto's mainstream footprint.
We're in a very different financial environment today. Most notably, the era of "free money" has infamously crashed and burned with the collapse of FTX, 3AC and others. VCs are tightening their budgets, as are companies more broadly. We're simply not at a time at which serious startups are going to find it easy to raise money, let alone random NFT projects.
Still, other factors at play beyond inflation could drive a crypto renaissance. Firstly, we're a year away from the next bitcoin halving event. During the halving events, the rewards for mining bitcoin are cut in half, which in theory, is supposed to cut supply in half. Assuming demand remains constant or rises, that's supposed to drive up prices. There is still debate about whether the halving events are priced in, but some have argued that the previous halving event also played a role in the last bull run.
But there's a more significant factor looming over the industry here. A recent study by four economists suggests that around 190 U.S. banks are also at risk of collapsing amid uninsured bank runs. Of course, not all of them will, and this likely isn't the doomsday scenario that will drive what bitcoin ers call "hyperbitcoinization" — a sort of bitcoin utopia in which people transact in bitcoin and central banks add bitcoin to their balance sheets. Still, it could lead to retail investors upping the bitcoin in their portfolios and banks starting to offer crypto services.
Investors are already eager to diversify their portfolios with traditional asset classes and bitcoin. It would be wise for banks to seize on that opportunity, especially now. That's especially true, considering banks have vast experience dealing with regulatory bodies to take this on more effectively than crypto-native platforms.
But for some financial institutions, especially the smaller and more localized ones that don't have the resources to build their own solutions to mirror those used by decentralized finance (DeFi) platforms, overcoming the technological barriers can be discouraging.
There are, however, actors working on getting banks and traditional institutions, large and small, up to speed. Self-custody platform GK8, for example, actively helps institutions manage digital assets securely while also supporting staking and other DeFi services.
There's an entire industry of tech solutions to assist banks in onboarding crypto because the institutional demand is there. Regardless of the overall health of TradFi or the market cap of the crypto industry, banks have already been inching toward integrating bitcoin and other digital assets into their balance sheets. And regardless of whether bitcoin enters into a bull market now or later, that demand will continue to rise.