By Senad Karaahmetovic
Bitcoin prices have continued to rise on Tuesday amid growing concerns that the Silicon Valley Bank (NASDAQ:SIVB) crisis will have a significant contagion effect on the rest of the traditional banking sector.
While Bitcoin price initially moved lower in a risk-off trade environment, the world’s largest cryptocurrency then staged a 27% rally off Friday’s lows to hit 3-week highs.
For Morgan Stanley equity strategists, this could be Bitcoin’s time to shine.
“Bitcoin was created as a way for anyone to hold value in a private digital wallet without needing an intermediary bank to hold the value for them or to facilitate transactions,” the strategists wrote in a client note.
However, they warn that the price showed that Bitcoin isn’t isolated from the traditional banking system.
“Our conclusion is that the Bitcoin network can operate without banks but that bitcoin's price, and thus its purchasing power, has been and continues to be influenced by fiat central bank policy and needs banks to facilitate flows into crypto,” strategists added in a note.
“If bitcoin had been trading on its core value proposition – the ability to "Be Your Own Bank" – then bitcoin would have rallied with rising bank uncertainty.”
They further argue that the ongoing rally in Bitcoin is likely a result of a “short squeeze rather than a fundamental shift in the trading dynamic.”
Finally, strategists also touched upon the question discussed by some in crypto circles in recent days - will holders of USD deposits convert to bitcoin due to uncertainty related to their deposit bank?
“Some may convert but we think that it is too early to say that this is a long-lasting trend. Bitcoin generally continues to trade in line with fiat money supply growth (M2). Without bitcoin being used significantly as a means of payment, it will be hard for bitcoin to diverge from its risk asset trading nature,” the strategists concluded.