Bitcoin Crosses $26K As U.S. Inflation Slows Down To 6%

Bitcoin (BTC) continued to rally amid the banking crisis and briefly went past the $26,000 mark on Tuesday after the latest U.S. Consumer Price Index (CPI) figures indicated a drop in the annual inflation rate to 6% in February. The world’s largest cryptocurrency rose by nearly 10% on Tuesday and is currently trading at $24,868 – up 1.8% since yesterday. 

Bitcoin Suffers But Rallies After SVB And Signature Bank Collapse 

All this started with the triad of banks that collapsed over the past week. Last Wednesday, Silvergate Bank, one of the largest banks in the United States, announced it was preparing for liquidation due to suffering losses from an $8.1 billion bank run in November. The bank, known as one of the biggest service providers for the crypto industry, was heavily impacted by the collapse of one of its clients – FTX. The bank’s shutdown heavily affected the crypto market as Bitcoin hit a weekly low of $20,000. 

Two days later, on March 10, Silicon Valley Bank (SVB), the 16th largest bank in the U.S., announced insolvency. The bank, which offers its services to almost 40% of the country’s venture capital-backed tech startups, was shut down after reporting losses of over a billion dollars from a sale of its assets to pay off debts.

SVB, which held deposits worth $175.4 billion as of December 2022, had a bank run after customers rushed to withdraw their deposits. The $42 billion withdrawal request was almost a quarter of SVB’s deposits and had to be shut down by U.S. regulators after being declared insolvent and incapable of repaying creditors. 

SVB was a custodian for stablecoin giant Circle, which had $3.3 billion in cash reserves backing the USD Coin (USDC) deposited in the bank. The second-largest banking failure since the 2008 global financial crisis had massive implications for the crypto market. USDC lost its dollar constant as holders rushed to redeem their holdings, resulting in the token trading as low as $0.87 on Friday. Bitcoin also dropped to its lowest valuation of the year at $19,662 on Friday. 

On Sunday, New York State Department for Financial Services (NYDFS) closed down Signature Bank, another banking giant focused on serving clients in the crypto industry and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC).

The U.S. Federal Reserve and the Treasury Department took over Signature Bank and SVB to stop the situation from leading to a possible financial crisis. Federal authorities also promised full access to depositors’ funds starting Monday, which came as a massive relief to the global financial markets. 

The crypto market began to rally soon after the Federal Reserve’s announcement as BTC crossed the $24,000 mark, trading at $24,234 on Monday. USDC regained most of its value after Circle confirmed it will move all cash deposits from SVB to BNY Mellon once the funds are made available. 

Bitcoin continued its rally deep into Tuesday after the U.S. Bureau of Labor Statistics (BLS) released its latest Consumer Price Index (CPI) data, showing the annual inflation rate in February to have come down to 6% from 6.4% in January. However, core inflation, which omits food and energy costs from its calculations, rose by 0.5% from January and 5.5% compared to last year. 

BTC hit a 3-week high of $26,431, rising 27% since its Friday low. Ethereum (ETH) also made gains as the second most valuable cryptocurrency rose 4.57% over the week to hit $1,767. 

However, the world’s largest cryptocurrency by market cap has since cooled down to its current price of $24,868. 

Market Analysts Divided On Whether Fed Will Raise Interest Rates After Meeting Expectations With CPI Figures 

The financial sector is now focused on next week’s Federal Open Market Committee meeting, where the Fed will decide whether to increase borrowing interest rates on the dollar even further. After implementing two 25 basis points (bps) interest rate hikes in January and February, the Federal Reserve had earlier indicated that it would consider hiking interest rates by 50 basis points to slow down the growth of the U.S. economy to bring inflation under control. 

After the failures of three of the largest banks in the United States and the CPI figures meeting expectations, some analysts are predicting the Fed to raise interest rates by another 25%, while others are suggesting the Fed may not hike the rates at all this month.