LBank breaks down Bitcoin's double-digit price surge

Global cryptocurrency exchange LBank has analysed Bitcoin's spot performance, which has culminated in an eight-month high of £22,540.

LBank Co-founder Johnason Chan and LBank Lab's board of directors member Czhang Lin have provided an in-depth analysis of the price increase.

Shortly after the collapse of Silvergate Bank, Silicon Valley Bank (SVB), and later Signature Bank, liquidity concerns for decentralised fintech players piled up.

Silicon Valley Bank (SVB), the 16th-largest US bank with £169 billion in assets, was seized by California regulators after depositors rushed to withdraw funds over concerns the bank might become insolvent.

It is the second-biggest bank failure in US history and the largest since the Federal Deposit Insurance Corporation was forced to take control of Washington Mutual in 2008 during the subprime housing crash.

SVB's collapse spooked customers at other banks, including clients with deposits exceeding the FDIC's £201,247 deposit insurance limit, and raised concerns about possible runs at other financial institutions.

Heightening those fears, New York state regulators shuttered Signature Bank – the third-biggest failure in U.S. banking history.

Another bank, Silvergate Capital, also blew up in March 2023 although that preceded SVB's failure and stemmed from losses tied to the struggles of cryptocurrency customers like bankrupt FTX and Genesis. The government did not take control of Silvergate, which chose to liquidate.

On the other hand, many believed a valuation drop would have been inevitable for crypto. At the time of writing, the world's largest digital asset by market capitalisation seems to have stabilised, continuing to hover around £22,536.

The market movement of Bitcoin is hard to make sense of, considering the ongoing unravelling of a banking crisis and expectations of further US interest rate hikes.

LBank Labs' Czhang Lin explained: "While the traditional finance banking crisis is still working on solving its liquidity issues, many institutions seek Bitcoin assets as alternative hedging products."

LBank's Johnason Chan also commented: "Earlier this week, LBank's Bitcoin trading volume more than doubled compared with the previous two months, which aligns with market trends."

He added: "One reason for this surge is that as investors are confronted with the fragility of TradFi, their risk appetite grows. A double-digit rise is historically rare. This rise directly reflects market sentiment, especially in the US."

The implosion of SVB has impacted stablecoins, particularly Circle's USDC, the second-largest stablecoin by market cap.

USDC briefly lost its peg with the dollar when Circle revealed that some of its cash reserves were parked with SVB.

Nevertheless, even with other stablecoins beginning to lose their dollar peg, the initial panic failed to spark a full-on sell-off.

Lin shared: "In light of the stablecoin fiasco, people are going back to Bitcoin,"

However, Chan added: "There's another reason for this surge. It comes amid a short squeeze, which historically sends prices higher. Traders liquidated £241 million worth of crypto positions, with £129 million in short positions. Futures play a crucial role in the crypto market, sometimes leading to market trends. After things cool off, prices will probably temporarily fall back to their usual spot."

Lin concluded: "The Bitcoin rally reflects people's loss of confidence in the central banking system. Yet, it is important to note that the macroeconomics is still weak and the sum of capital injection on-chain is relatively low. An outflow in digital asset investment products is continuing. We need to understand the drawbacks."