[]Cryptocurrencies are experiencing a “redemption arc,” as bitcoin rallies and investors keep a close eye on pressures in the U.S. banking system, according to analysts at AllianceBernstein.
[]Bitcoin BTCUSD, -0.63% tumbled harder than other major assets last year, but has rebounded sharply this year.
[]The recent turmoil in the banking sector, from the collapses of Silicon Valley Bank, Signature Bank SBNY, -22.87%, and Silvergate Bank SI, -18.05% in the U.S., to UBS UBS, +3.30%’s acquisition of its troubled Swiss peer Credit Suisse CS, -52.99% over the weekend, accelerated bitcoin’s recovery, Gautam Chhugani and Manas Agrawal, analysts at AllianceBernstein wrote in a note Monday.
[]The largest cryptocurrency jumped over 66% year-to-date, while it is still down 42% since the beginning of 2022, according to the analysts.
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The S&P 500 SPX, +0.89% went up 2%, but still was down 18% since the start of last year. Gold GC00, +0.10% gained 8% year-to-date and kept the same return since the start of 2022. The dollar DXY, +0.02% was flat since the start of the year, but is up 8% from the beginning of last year.
AllianceBernstein []Analysts at AllianceBernstein called bitcoin “an insurance against economic discloation” and “unwanted consequences of the government’s excessive monetary and fiscal discretion.”
[]In recent weeks, smaller banks in the U.S. have been losing deposits to larger U.S. banks and the money market, which intensified short-term liquidity stress, noted the analysts.
[]Meanwhile, the possibility of a recession could pose challenges for banks regarding their asset quality in the midterm, according to the analysts.
[]What’s more, a recession would likely result in lower tax collections, potentially worsening the situation around the U.S. debt ceiling and the country’s fiscal deficit, noted the analysts.
[]“If something in the government/central bank apparatus breaks, bitcoin/crypto will benefit from such an event,” the analysts wrote.
[]Bitcoin also has been trading as a risk-off asset, and has started decoupling from U.S. stocks in November, when the crypto exchange FTX collapsed, the analysts said.
[]The cryptocurrency industry has long touted itself as an alternative to government-issued currencies, like the dollar.
[]While returns on bitcoin and equities showed an insignificant correlation from 2010 to 2020, their correlation rose as the Federal Reserve eased its monetary policy since the start of the pandemic, as most risk assets flourished after the Fed’s policy actions, noted the Bernstein analysts.
[]“We expect that as the monetary policy finds a new normal, the correlation should revert to the pre-pandemic trend,” the analysts wrote.
