The recent troubles at Silicon Valley Bank which made headlines across the U.S. have caused a surge in cryptocurrency prices, with Bitcoin as one of the leading crypto assets witnessing growth due to it. While stocks are typically backed by hard assets or cash flow coming from an underlying company; Crypto does not possess such type of value, rendering them among the riskiest possible trading vehicles. Surprisingly though, when news broke that all deposits at this troubled California bank would be insured and depositors remain unscathed – Cryptocurrency prices jumped instead! In this article, we’ll explore why Bitcoin is rising despite such market instability. If you are planning to start your trading journey, you must consider using a reliable trading platform such as Bitcoin Era AI-bot.
Rise in Bitcoin after Bank Blowup
Bitcoin experienced an 18 percent surge following news that federal regulators would backstop deposits at Silicon Valley Bank and create a fund to protect other American banks. What is driving the burgeoning crypto prices? Ultimately, it boils down to interest rates. Cryptocurrencies are classified as high-risk assets, meaning their price movements often coincide with changes in future interest rate direction – much like many growth stocks. When rates increase, investors tend to shy away from such riskier investments; conversely, when rates decline, traders typically flock towards more risky asset classes.
The Federal Reserve is quickly raising short-term rates to manage inflationary pressures. This policy has had ripple effects across financial markets; including increased funding costs for banks, decreased bond prices and depressed stock values. Meanwhile, crypto enthusiasts view Bitcoin’s recent stability as proof of its effectiveness and continued acceptance in mainstream finance.
Why is Stablecoin under pressure?
USD Coin, a so-called stablecoin whose objective is to keep its worth of USD one, was under pressure this weekend. Unlike most other cryptocurrencies, stablecoins are not intended to experience swings in their prices; therefore such a sharp decline could lead to a run on the cryptocurrency. Typically, these coins back up their worth with hard assets like physical US dollars and need an economic environment that supports them which Silicon Valley Bank’s closure caused it not to have sufficient supply.
Investors were wary about the future of the USD Coin due to an announcement from regulators that only deposit holders with less than $250,000 would receive a full return. This also raised concerns as only 10% of the backing was held in Silicon Valley Bank and it remained uncertain if those funds could be refunded.
Investors should know these things about Cryptocurrency
You must recognize the risks related to investing in cryptocurrency. The volatility related to crypto markets might make popular stock markets seem a little stale in comparison with other markets. Stablecoins offer some security but are still subject to wild swings – a stellar example being UST’s meltdown in 2022. Inexperienced traders may find themselves making unwise decisions if they do not adequately assess market volatility or allow their emotions to get the better of them.
Volatility is just one of the challenges that come with investing in cryptocurrencies – another crucial factor to consider is their inherent lack of value. With stocks, investors can make money by betting on a company’s underlying assets and cash flow; however, cryptocurrency values are held up solely by trader sentiment. In other words, crypto traders have no way to generate income from it besides selling it at an exponentially higher price than they bought it for – this strategy is sometimes referred to as ‘the greater fool theory’.
Parting Thoughts
Investing in cryptocurrency is often driven by short-term factors like the Silicon Valley Bank crisis, but remember that their value over time may not be as reliable. Building wealth is a long-term game and comes with thoughtful planning – it’s more decisive than putting your money on a gamble.
