Bitcoin takes a wild ride as traders bet on a crypto comeback
The largest cryptocurrency rose above 26K before giving back its gains Tuesday
Bitcoin went for a wild ride Tuesday following the release of a key inflation report, rising above $26,000 in the morning before falling near $24,000 by early evening.
After 5 pm EST the cryptocurrency traded at $24,300, roughly unchanged as compared to 24 hours earlier. At one point Tuesday it was up 18%. Smaller cryptocurrencies also surged and then fell back over the course of the day, including Ether (ETH-USD), Dogecoin (DOGE-USD), Polygon (MATIC-USD) and Polkadot (DOT-USD). Ether was flat after 5 pm and Dogecoin, Polygon and Polkadot were all down between 1-2%.
The added volatility in the crypto market coincided with mixed signals about inflation and government efforts to stabilize the banking system following the failures of Silicon Valley Bank, a lender to tech firms, and Signature Bank, which catered to the cryptocurrency industry. US officials announced a series of measures Sunday night to deal with the banking crisis, including a plan to ensure that all depositors at failed banks get their money back. Another bank that served crypto clients, Silvergate Bank, also decided to wind itself down last week.
The collapse of these banks created concern in the cryptocurrency world because of certain exposures to those institutions. The second largest stablecoin, USDC (USDC-USD), fell below its crucial $1 peg on Friday to a low of 88 cents by Saturday morning as the digital coin's most recent “transparency report” showed its issuer, Circle, kept $3.3 billion of its cash reserves with Silicon Valley Bank.
"Bitcoin is getting a relief bid that seems driven, in part, by general risk-on sentiment following the depositor bailout at Silicon Valley Bank and Signature Bank," Ben McMillan, chief investment officer with asset manager IDX, told Yahoo Finance.
The day started with an announcement that headline inflation for February’s Consumer Price Index came in line with analyst expectations, rising 0.4% over the last month and 6% over the prior year in February. Core inflation prices, however, increased by 0.5% despite expectations of 0.4%. The 6% jump in inflation was the slowest annual increase in consumer prices since September 2021.
Bitcoin (BTC-USD) and other major digital coins attracted higher flows Monday after Binance founder and CEO Changpeng Zhao announced his firm, the world's largest cryptocurrency exchange, would convert $1 billion of funds from the discontinued stablecoin Binance USD to "BTC, BNB and ETH."
After rising as much as 12%, the total market capitalization of crypto assets was flat as of 5:20 pm and valued at $1.08 trillion, according to Coinmarketcap.
The crypto ecosystem continues to be the “highest risk part of the market" according to Matthew Miskin, co-chief investment officer of John Hancock Investment Management. Miskin told Yahoo Finance his firm believes bitcoin's Tuesday rally is "masking underlying risks" relating to the recent bank closures.
Edward Moya, senior market analyst with Oanda, told Yahoo Finance that he is skeptical bitcoin's rally can last, calling Tuesday's move an "overreaction to inflation data."
Several traders and firms started placing bets on a comeback last weekend when crypto values fell.
"There were some arbitrage opportunities around USDC and other stablecoins like Tether that traders in the market poured into," Michael Safai, co-founder and partner of trading firm Dexterity Capital, told Yahoo Finance.
Safai said his firm was one among many who piled into the trade betting USDC wouldn't fail though it was part of the firm's regular "day-to-day trading strategies."
On Saturday, 38-year-old crypto trader Doğu Tekinoğlu swapped $8 million worth of the stablecoin USDT for discounted USD coin, according to blockchain data verified by Yahoo Finance. That paid off after Circle said Saturday it would cover any shortfall in deposits lost from Silicon Valley Bank and regulators said Sunday that all depositors would get their money back. The stablecoin has since climbed above 99 cents per coin.
Tekinoğlu said on Tuesday morning his purchases had netted a profit. “Of course, none of it is 100% guaranteed but that's life in crypto. Turning pure speculation into profit,” Tekinoğlu told Yahoo Finance.
David Hollerith is a reporter for Yahoo Finance. Follow him on Twitter @DSHollers
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