Bankless: The end point is $1 million? The battle between Bitcoin’s Beta and Nasdaq and digital gold

Bitcoin is still climbing even as the macro environment becomes more worrisome.

The latest collapse began with the collapse of Silicon Valley Bank and has since spread to other institutions around the world. In response to this banking crisis, central banks and governments did what they always do: print money to keep the system going.

The Fed’s balance sheet has grown by nearly $300 billion since the crisis began, offsetting nearly half of the $600 billion in quantitative tightening they have implemented since March 2022.

In the past, almost no one could escape this dollar system, maybe you could buy some gold and try to bury it in the backyard. Thankfully, cryptocurrencies make it easier for us to deal with this crisis. Since the banking crisis began in 2023, crypto assets are surging, led by Bitcoin.

Bitcoin’s massive rally over the past few weeks has been great for cryptocurrency holders, but the implications are far more significant than double-digit percentage gains.

This rally has the potential to change the way people think about cryptocurrencies forever. How so? Let’s find out by exploring the market’s reaction since SVB’s collapse, so we can assess how it affects Bitcoin now and in the future.

Bond Market

Bond markets have experienced huge volatility over the past few weeks, with prices surging and yields plunging since the crisis began.

The yield on the two-year Treasury note has fallen dramatically from 5.1% on March 9 to 4.1% on March 21. The two-year note is a "Fed bellwether" because it is the best predictor of how the central bank will act in the near term to change the federal funds rate. The 10-year note has also plummeted since SVB's collapse, falling from 4.0% to 3.6% since November 9.

US 2-year and 10-year Treasury yields 3/9-3/21 - Source: TradingView

The decline in yields could be due to a number of factors. One is due to "safety flight," with investors buying Treasuries because they are less risky and the U.S. government is (at least nominally) less likely to default. The move could also be driven by investors getting ahead of a possible pause or pivot by the Fed. Although, as we found out today, rate hikes are not completely over yet.

stock

Stock markets have experienced significant volatility since the crisis began.

The S&P 500 and Nasdaq fell 4.3% and 4.7%, respectively, between March 8 and March 13 as concerns grew about the health of regional banks and potential contagion. However, following government interventions with SVB and Signature, the indices have recovered from those losses, with the S&P up 4.9% and the Nasdaq up 7.8% since the morning of March 13.

S&P and Nasdaq 3/9-3/21 - Source: TradingView

While individual sectors such as regional banks continue to suffer, government measures to prevent further panic spread and the aforementioned boost from the Fed’s rate cut expectations may stop the index from falling. The Nasdaq’s outperformance relative to the S&P may be due to investors flocking to the safety of large-cap tech stocks, with Apple, Microsoft, Google and Meta all surging since bottoming on March 13.

Precious Metals

Precious metals have been surging since the banking crisis began. Gold has risen 11.5% since March 9, while silver has also risen 7.0% during that period.

Gold and Silver 3/9-3/21 - Source: TradingView

As with Treasuries (and to some extent large-cap tech stocks), gold’s rally is likely due to safe-haven sentiment. Unlike bonds and stocks, gold and precious metals act as a hedge against the collapse of the fiat monetary system because they are non-sovereign and not tied to or issued by any one country or monetary system.

Cryptocurrency

Cryptocurrency markets have moved higher since the banking crisis began. Since March 9, BTC has surged 29.4% and ETH has surged 16.4%, with crypto markets adding $263 billion in value during that time.

BTC and ETH March 9-21 - Source: TradingView

Although BTC and ETH fell 10.1% and 10.6% respectively between March 9 and 10 during the “stablecoin panic”, this was due to market panic about the USDC decoupling caused by Circle’s inability to withdraw its $3.3 billion deposit in SVB.

Since SVB’s collapse, major cryptocurrencies, especially Bitcoin, have seen their dominance rise from 43.6% to 47.3%, with the same reason as gold, cryptocurrencies are acting as safe havens.

BTC Advantage - Source: TradingView

In addition, like the other asset classes mentioned above, cryptocurrencies may also reverse their trend before the Fed pauses or turns its head in anticipation of the end of the Fed’s tightening cycle. Crypto assets such as Bitcoin are more sensitive to liquidity, and this asset seems to be sniffing out the significant increase in the Fed’s balance sheet and the implicit depreciation of the US dollar that occurred after SVB.

Why the game has changed

Bitcoin has been a game changer, acting as a safe haven during the biggest banking panic in decades despite skeptics considering it a risk-on asset. In fact, it has outperformed every major asset class since the crisis began.

At the same time as the banking industry was in crisis, Bitcoin soared and became the best protection against the collapse of the fiat system. In theory, it makes sense why Bitcoin performed so strongly because it has all the attributes of a safe haven and a store of value. As mentioned above, Bitcoin is a non-sovereign asset that is more scarce, more portable, and more difficult to obtain than gold.

However, we have yet to really see this play out in practice. Instead, cryptocurrencies are often labeled as “high beta NASDAQ”, a label that makes sense to some extent due to the strong historical positive correlation between the two.

BTC and Nasdaq correlation - Source: The Block

This comparison never made much sense at first glance. Although both Bitcoin and the Nasdaq are related to technology, Bitcoin is a monetary asset, it is not a company and does not generate cash flow. Despite this, their correlation had not weakened significantly before SVB.

BTC Correlation with Gold and Nasdaq - The Block

As we can see, the correlation between BTC and the Nasdaq has changed since the crisis began, while the correlation between BTC and gold has strengthened. Of course this may be just a small sample, but considering the magnitude of the events of the past few weeks, this price action cannot be ignored. This seems to indicate that Bitcoin is transforming from a technical play to true digital gold.

This is a major shift in how Bitcoin is viewed and traded. Whether crypto natives, traditional financial institutions, retail investors or nation-states, investors will now increasingly view Bitcoin as a safe haven rather than a pure speculative tool.

Bitcoin not only protects against institutional failures, but also serves as a hedge for its holders against currency debasement due to large increases in the money supply, such as what we have seen since the creation of the Bank Term Funding Program (BTFP). Investors have gained during this crisis by holding BTC, which increases the likelihood that they will behave similarly in the next crisis.

Will BTC hit $1 million?

As always, Bitcoin’s rally has energized the community, with some of the industry’s biggest names making bold price predictions. The most popular of these opinions come from industry heavyweights like Balaji Srinivasan and Arthur Hayes. They believe BTC will reach $1 million due to the devaluation of the dollar caused by the Federal Reserve’s unlimited money printing.

Where the predictions differ is in the time frame. While Hayes predicts we’ll see seven-figure BTC in the next few years, Balaji thinks it could hit $1 million in the next 90 days.

Balaji’s call is enough to make anyone anxious, whether they are a cryptocurrency holder or a fiat currency holder, because if the US dollar experiences hyperinflation within 90 days, it will cause serious turmoil in the entire world.

Whether or not the timeline will prove correct, the monetary system is crumbling, a dead tree that never recovered from the global financial crisis and continues to be propped up by money printing.

With every emergency move, bailout, and dollar printing, the fragility of the monetary system becomes more apparent, as if all roads lead to endless money printing. Yet, rather than cure the cause, central banks simply continue to prolong the crisis into the future, prolonging their inevitable demise.

One aspect where I agree with Balaji is that whenever it comes, hyperinflation will happen very quickly. Balaji argues that the collapse of the dollar relative to Bitcoin will happen incredibly quickly due to the digitization of the world and the speed at which we can transfer information and value. This makes sense, as we have seen over the years in cryptocurrencies and now in traditional finance, and in the internet age, people can lose confidence in money and financial institutions extremely quickly.

In the interim, it is likely that such hyperinflationary talk is overblown. However, after the events of the past few weeks, I am more confident than ever that cryptocurrencies will grow to represent a more significant safe-haven asset for investors.