Bitcoin (BTC) is benefiting from instability in the financial system, from falling inflation that allows the Federal Reserve to become less hawkish, and from a regulatory overhang that has hit stablecoins, crypto services provider Matrixport said in a report Thursday.
“As those three trends persist, bitcoin prices can stay high and continue to rally,” wrote Markus Thielen, head of research.
Matrixport says “investors have now woken up,” noting that the Fed’s interest-rate policy has severely damaged some investment portfolios and threatened the financial stability of the economy.
There are several flights to quality happening at the same time, the note said.
There has been a shift from higher beta – or more volatile – cryptocurrencies into bitcoin alongside a transition from stablecoins, which are less volatile. When Paxos’ Binance USD (BUSD) encountered regulatory scrutiny, money moved from BUSD to BTC and when Circle’s USD Coin (USDC) lost its peg there were flows from USDC. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar or gold.
In addition, the Fed’s rate-increase policies have led to falling prices of Treasurys, lowering the value of banks’ portfolios. The collapse of Silvergate (SI), Silicon Valley Bank (SVB) and Signature Bank (SBNY) has roiled financial markets in the past week.
Flight to quality is when investors sell what they perceive to be higher-risk investments and buy safer assets.
Potential classification as a security has also become an overhang for many cryptocurrencies, the note added.
“While there appears to be a clear path to regulation, there is a specific understanding that some can escape regulation,” the report added, noting that regulators and central banks have classified bitcoin as a commodity, not a security.
