Bitcoin BTC price is holding near $25,000 as investors remain optimistic on inflation data and Fed rate hikes

Inflation declined encouragingly. Investor hopes for a less draconian US Federal Reserve held.

Bitcoin embraced the more bullish sentiment and continued its uptrend for much of Tuesday, surging above $26,000 at one point for the first time since last summer before retreating by more than $1,000.

The largest cryptocurrency by market cap recently traded at $24,936, up about 2% over the past 24 hours. BTC’s standstill followed two straight days of double-digit gains amid Binance stablecoin conversion, investor relief that the banking sector would not collapse, and the Federal Reserve reversing its steady diet of bullish rate hikes would, were connected.

On Tuesday, a small decline in the consumer price index (CPI) from 6.4% in January to 6% last month seemed to offer the Fed new reasons for monetary dovishness. Even a monthly increase in the core inflation rate, which removes volatile food and energy costs, contained a counterweight – a slight annual decline.

“Bitcoin is booming because the liquidity situation appears to be changing rapidly,” Joe Ziolkowski, CEO and co-founder of digital asset insurer Relm Insurance, wrote in an email to CoinDesk. “Today’s CPI data shows that inflation is slowing.

Ziolkowski noted that the recent banking crisis, with the collapse of Signature, Silvergate, and Silicon Valley banks, “has sparked a federal response, injected a lot of money into the economy, and strengthened the use case of Bitcoin as a decentralized alternative to our existing banking system.”

“Investors are clearly showing confidence in this,” he wrote.

Ether changed hands just above $1,700, around where it was at the same time Monday. The second-largest cryptocurrency has roughly caught up with BTC’s rally this week. Other major cryptos spent most of Tuesday healthy on the green before leveling off. APT, the token of Layer 1 blockchain Aptos, recently surged more than 14%. Crypto exchange’s native crypto, CRO, is up about 6%. The CoinDesk Market Index, a measure of the overall performance of the crypto market, rose 2.4%.

US stock markets also took heart from the CPI report, with the tech-heavy Nasdaq and S&P 500 gaining 2.1% and 1.6%, respectively. But as CoinDesk analyst Glenn Williams wrote in his Tuesday column, the Fed’s path ahead at its March 22 meeting remains uncertain.

Ziolkowski von Reim optimistically noted that “now the pressure is mounting on the Federal Reserve to slow and perhaps even halt the pace of interest rate hikes, as the rapid rate hikes over the past year have clearly weighed heavily on the system.”

He added, “The setup for a sustained rally for Bitcoin and other digital assets appears to be in play.”

Crypto Industry Banking Learning Curve

While depositors are being healed, the shockwaves the industry is feeling are no longer due to the concept of lost funds, but rather to the loss of pro-industry banks that were pillars of the sector.

As CoinDesk recently reported, crypto companies orphaned by the demise of Silvergate and Signature and the incompetence of Silicon Valley Bank have hurt the industry.

William Quigley, a co-founder of Tether that now runs non-fungible token (NFT) exchange WAX, told CoinDesk in an interview that the Silicon Valley bank’s demise was due to management incompetence.

Quigley says that around June 2022, management should have noticed the depreciation in its bonds and Treasuries and moved to sell the portfolio and absorb the losses or bring in more deposits.

“I was chairman of the audit committee and bank auditor. I know the conversations that will be had when deposits start to fall at a faster rate and our investment portfolio is so badly impacted that we don’t have enough money left to pay off depositors,” he said.

Management should have contacted the Fed in January, and the Fed should have put the bank into some sort of prudential resolution.

The problem that will arise, he says, is a lack of trust. SVB was regulated by multiple federal and state agencies, had an impeccable audit opinion and was rated investment grade by a federally licensed credit rating agency, making it appear like a good bank.

SVB existed because big banks didn’t typically give tech startups and crypto companies a time of day.

But that doesn’t mean it’s impossible.

As CoinDesk recently reported, crypto conglomerate Digital Currency Group (DCG) has had productive talks with the likes of Santander (SAN), HSBC (HSBA), Deutsche Bank and United Overseas Bank (UOB) in Singapore, as well as fintechs such as Revolout on onboarding its portfolio companies.

DCG is reportedly in talks with major banks, but there’s no guarantee they’ll come to fruition. These banks could end up being spooked by something and refusing to onboard businesses orphaned by Silvergate SVB signature.

(DCG is the parent company of CoinDesk)

Around the last decade, Taiwanese crypto exchange Maicoin has had fiat on- and offramps at Far Eastern International Bank, which the Fed would classify as a big bank.

Alex Liu, the CEO of Maicoin, told CoinDesk that there’s not really magic in convincing banks to give fiat pipelines to its exchanges. He’s also quick to point out that the primary cause of the demise of these three banks in the US isn’t crypto itself.

“It’s about not coming across as a bomb-throwing radical. It helps when you can put on a suit and talk about things like investor protection, KYC, AML and so on,” he said.

It also helps to have a physical address for your headquarters, he continued. Maicoin’s headquarters are located in an office tower in downtown Taipei.

“How many crypto companies refuse to do that one thing?” he asks.

Crypto Banking Troubles in Asia?

As all of this is happening, many jurisdictions in Asia, from Hong Kong to Taiwan, are working to build a crypto licensing system for retailers.

Surely they’ll be looking to the US to see what’s going on, especially given the last six months of FTX and now three banks collapsing.

No regulator or legislature in the US has come out and said outright, “Hey, let’s just ban this thing,” Liu points out.

Regulators in Asia will take this as an indication.

Bitcoin has broken $26,000 to a nine-month high after the latest inflation data. The Justice Department and SEC have investigated the collapse of Silicon Valley Bank. And why did Meta scale back support for NFTs on Instagram and Facebook?

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