Bitcoin broke through $28,000 several times last week. Although it subsequently fell to $27,000, its growth has made it one of the best assets in the world, slowly climbing to the annual target of $30,000. The market trading volume is also quite active. It is believed that Bitcoin will be one of the safe-haven assets besides gold in the event of a banking crisis. Recently, many unexpected events have occurred in the global market, impacting people's confidence in the banking system. Let us explain slowly.

First, the Swiss government forced UBS to acquire Credit Suisse in an all-stock swap in order to resolve the crisis of depositors withdrawing money from Credit Suisse. This crisis was rumored to be caused by the sanctions imposed on Russian tycoons in compliance with US requirements this year. This means that the US sanctions can extend to Swiss banks, and it has also caused concerns among the wealthy in countries unfriendly to the US, who have chosen to transfer their funds elsewhere, causing Credit Suisse to face a serious bank run crisis of confidence.

After the banking crisis, the Fed held an interest rate decision meeting, and the result of the meeting was a one-point rate hike. As mentioned earlier, the Fed's move was to delay time to observe more data before making a decision. At the same time, the US dollar benchmark interest rate reached more than 5%, which also dashed the market's expectation that the Fed would suspend interest rate hikes. Some hedge funds chose to trade with the trend and began to turn their attention to shorting those "European banks with poor physical conditions."

The banking crisis is just a fake topic, and short-selling funds will not miss this good opportunity. Recently, the prices of CDS (Contract Debt Securities) of many European banks have skyrocketed. The original intention of this product is that if a company defaults, investors holding CDS will be able to obtain compensation from the CDS sellers. In other words, the higher the price, the higher the risk of company default.

Now many European banks' CDS are being artificially inflated. Behind the scenes, a group of traders are speculating on CDS prices in order to deepen the market's confidence in bank defaults and bankruptcies. For example, the Credit Suisse crisis also fell into a confidence crisis after CDS prices skyrocketed, and the next one was Deutsche Bank. At the same time, traders are making profits by shorting bank stocks.

However, as the sense of banking crisis gradually deepens, Bitcoin will continue to benefit. After all, Bitcoin is now regarded as digital gold. Investors believe that it can avoid market risks like gold when bank confidence collapses. This is also one of the reasons why the recent price support of crypto assets is very strong. However, the crypto market is facing a compliance crisis. Not only did the US government revoke two crypto banks in just one month, the SEC also took more legal actions against crypto exchanges and platforms. The regulatory risk is also increasing. Let us talk about the current situation.

A. On March 20, to save market confidence, UBS agreed to acquire Credit Suisse at a 54% discount for $3.2 billion.

Recently, Credit Suisse's financial difficulties have become a time bomb in the financial market. Two weeks ago, its annual report mentioned "significant internal control deficiencies", which means that there are problems with operational management and control, and there may be unknown financial bombs hidden. Usually this message means that the company is really in trouble and there is an immediate crisis of bankruptcy. It also accelerates the speed at which customers withdraw their deposits from Credit Suisse. The bank is facing a huge bank run.

Since Credit Suisse has a huge customer base and banking relationships, its collapse will have a huge negative impact on the global economy, just as FTX has close ties with many crypto platforms. In addition to providing $50 billion in liquidity, the Swiss government still has to rely on a financial backer to save Credit Suisse from the crisis. Therefore, it is negotiating with another Swiss financial giant, UBS, to urgently acquire Credit Suisse.

Currently, UBS has offered to acquire Credit Suisse for US$3.2 billion in a stock-swap transaction, which will not involve any of UBS' cash positions. However, this is far lower than Credit Suisse's current market value of US$7 billion. UBS also requires regulators to allow UBS to carry out a layoff plan of more than 10,000 positions and grant special approval in terms of capital adequacy and regulations. Currently, this acquisition plan has been officially announced on UBS's official website, hoping that the acquisition by UBS will resolve the current banking confidence crisis.

B. On March 21, the AT1 debt crisis brought investor confidence to Bitcoin, and it challenged $28,000 again.

Credit Suisse was acquired by UBS yesterday in an all-stock swap for USD 3.2 billion. At the same time, the Swiss government chose to eliminate Credit Suisse AT1 bonds. All investors holding AT1 bonds were completely ripped off, and the value of their positions was reduced to zero. This caused an uproar in the financial circle, because the rights of bondholders have always taken precedence over those of shareholders, and even the regulations state so. However, in order to avoid a financial crisis, Swiss regulators chose to sacrifice AT1 creditors.

This also caused the European AT1 bond market to instantly become stagnant, and investors frantically sold AT1 bonds because Credit Suisse broke the historical precedent that shareholders were superior to bondholders. In the future, AT1 bond holders may be sacrificed first. Credit Suisse shareholders can at least exchange them for UBS shares at a discount. In the past, AT1 bonds were a popular channel for banks to raise funds, but now no one dares to buy AT1 bonds.

The Credit Suisse incident caused bondholders' assets to evaporate overnight and stocks to be sold at a 60% discount, making investors no longer confident in holding bank stocks. It would be better to buy Bitcoin, which is much safer than bank stocks. The bank crisis theme attracted more investors to invest in Bitcoin. In addition, BUSD stablecoin funds continued to flow into the market, driving the Bitcoin price to challenge US$28,000 again.

C. On March 23, the Fed FOMC decided to raise interest rates by one basis point, and the SEC warned Coinbase that it violated securities laws.

The U.S. Federal Reserve (Fed) announced a one-basis rate hike early this morning, and in its subsequent conclusions stated that it would continue to fight inflation, but also mentioned the Fed's views on the existing U.S. banking system, which means that it is becoming increasingly difficult for households and users to borrow money, and interest rates continue to rise. Currently, there is no consensus in the market on the Fed's interest rate hike, especially as some analysts believe that the Fed's continued interest rate hikes regardless of bank risks will have a negative impact on the market, and the previous expectation of suspending interest rate hikes has been dashed.

After the expectation of "pause in interest rate hikes" was dashed, both the U.S. stock market and the crypto market showed a trend of rising and falling. Bitcoin fell from US$29,000 to US$27,500. Some speculative funds were disappointed with the expectation of this interest rate hike because they believed that the Fed would suspend interest rate hikes due to the banking crisis, but now it is obviously not the case. The Fed still puts combating inflation as its top priority.

As for the crypto market, the SEC also took two measures against the crypto market today. The first was to sue Justin Sun’s company for using celebrities to sell cryptocurrencies without telling investors that these celebrities were paid marketing. On the other hand, the SEC also warned Coinbase that its cryptocurrency services involved violations of securities laws, causing Coinbase to plummet 15% after the market.

Compliance risks are increasing dramatically, and Bitcoin is currently the lowest-risk investment option

The SEC's warning that Coinbase's services may be illegal and its investigation into Justin Sun's company's paid marketing through celebrities and influencers are also considered illegal. This is not just a question of whether or not the paid marketing is disclosed, but also whether the company is involved in the sale of unregistered securities. The so-called "definition" of cryptocurrencies other than Bitcoin is considered securities by the SEC, and the scope has gradually expanded to Ethereum, which has been converted to POS, not to mention the BUSD stablecoin. The SEC's recent actions have been too frequent, as if it wants to consider all cryptocurrencies other than Bitcoin as securities.

Therefore, small and medium-sized cryptocurrencies have a higher risk of being delisted by exchanges at this point in time. Investors choose to invest most of their funds in buying Bitcoin, causing the recent increase in Bitcoin to be significantly higher than that of small and medium-sized cryptocurrencies. In addition, The lost market value of the BUSD stablecoin also continues to flow into Bitcoin and USDT, providing stable support for the market. Coupled with the catalysis of the bank's confidence crisis, Bitcoin has become one of the best investment options, with growth rates significantly higher than those in the United States. Most targets in the stock market.

It is worth noting that we have not seen a large influx of external corporate funds into the crypto market. Most of the current buying comes from existing funds parked in the market. There is no situation like in 2020 where Wall Street funds poured into the market to buy stocks, because many corporate banks have refused to handle the cash flow needs related to crypto platforms. Corporates are even more afraid that crypto banks will be more risky under a banking crisis. Even the largest Silvergate and Signature have been liquidated and taken over. The crypto market is becoming more closed, which is a problem the industry is facing.

Next, the price of gold is also an asset that many people have noticed. As the banking crisis fermented, the price of gold even broke through the price of US$2,000 per ounce. Investors believe that buying safe assets can avoid the economic crisis. On the other hand, US Treasury bonds have also become a good target, especially the previous 10-year US Treasury bond yield was as high as 4.2%, which became a good place for many institutions to hedge risks. Therefore, funds began to flow into these assets, further pushing up prices. Gold can be said to be one of the hottest commodities in recent times, and Bitcoin also has similar characteristics.

It is quite interesting to say that Bitcoin has long been regarded as a speculative commodity. When the market is loose, it will be sought after by a large amount of funds. At this time, this characteristic of gold is not very obvious. The price has risen but the increase is not large. At other times, it is basically stagnant. However, when bank-related panic occurs, both Bitcoin and gold can benefit. In other words, Bitcoin has the characteristics of a speculative asset when the market is loose, and it becomes a good place for funds to hedge when there is a war or economic crisis. The only negative factor that cannot be resisted is probably the interest rate hike. These excellent characteristics will continue to push up the price of Bitcoin.