Cryptocurrencies jumped on Wednesday as investor concerns about the U.S. banking sector began to swell again, with First Republic Bank fighting to avoid another collapse.
Bitcoin jumped 5% to $28,974.00, according to Coin Metrics. That helped lift ether, which advanced 4% to $1,913.05. Both crypto assets are still below the key levels of $30,000 and $2,000, respectively, that they traded at two weeks ago for the first time since last year.
Bitcoin had been trading sideways for several days, with volatility back to its lows of early March, before the banking crisis began and became one of the cryptocurrency’s biggest upward catalysts this year. Now, troubles at First Republic and rumors of its potential failure could be helping drive the cryptocurrency’s price action again, according to Matt Hougan, chief investment officer at Bitwise Asset Management.
“Crypto rallies during banking crises, and it looks like the banking crisis may not be over,” Hougan said.
First Republic shares fell almost 50% to a record low on Tuesday after reporting a massive drop in deposits in the first quarter as customers pulled their money out following the collapse of Silicon Valley Bank. CNBC’s David Faber reported that the next few days are crucial for the company, as other banks and federal officials seek to pull together a rescue plan for it.
Bitcoin rallied 22% in March as the crisis among U.S. regional banks opened investors’ eyes to the diversity of bitcoin’s narrative and particularly its potential uses as a hedge against uncertainty and as an alternative banking system.
“Bitcoin continues to straddle between being the ultimate lifeboat from the current banking system and the leading risk-on asset,” said managing partner James Lavish at Bitcoin Opportunity Fund. “As First Republic is now on the verge of collapse, bitcoin represents both a safe haven versus uncertain bank deposits.”
The pullback over the past week hasn’t negated the year-to-date uptrend, however, and crypto remains in a long-term bull market, according to Bitwise’s Hougan.
The U.S. dollar index was down 0.56% and on pace for worst day since Apr. 12, when bitcoin traded at its highs of this year. The two tend to have an inverse relationship.
Meanwhile, bitcoin’s 30-day rolling correlation with gold has been climbing since March and now stands at 57%, its highest level in almost two years, according to crypto data provider Kaiko.
—CNBC’s Gina Francolla contributed reporting