US banking crisis may be vindication for crypto ecosystem: JPMorgan

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Despite recent regulatory headwinds, the cryptocurrency market has rallied strongly over the past month, with bitcoin (BTC) outperforming, JPMorgan (JPM) said in a research report last week.

The bank notes that bitcoin, the largest cryptocurrency by market cap, gained along with gold, as both are seen as hedges against a doomsday scenario.

Recent problems in the banking sector have also exposed weaknesses in the traditional financial system, as banks’ maturity mismatches are susceptible to bank runs, analysts led by Nikolaos Panigirtzoglou wrote.

The US banking crisis and the intense shift of US bank deposits to US money market funds are seen by crypto proponents as a vindication of the crypto ecosystem, according to the report.

Bitcoin has also benefited from the launch two months ago of bitcoin ordinals, which some believe will increase transaction fees and increase revenue for miners, the note said.

JPMorgan says the biggest support for bitcoin has come from investors’ growing focus on next year’s halving event, scheduled for April 2024, when mining rewards will be cut in half.

This would mechanically double the cost of producing bitcoin to around $40,000, creating a positive psychological effect, as historically the cost of producing BTC has acted as an effective lower bound on its price, the report adds.

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