Bitcoin Is Benefiting From Crypto’s Flight to Quality: Matrixport

Bitcoin (BTC) is benefiting from instability in the financial system, falling inflation that allows the Federal Reserve to become less hawkish and a regulatory overhang that has hit stablecoins, crypto-services provider Matrixport said in a report Thursday.

“As those three trends persist, bitcoin prices can stay high and continue to rally," Markus Thielen, head of research at Matrixport, wrote in the note.

“Investors have now woken up,” Thielen said, noting that the Fed’s interest-rate policy has severely damaged some investment portfolios and threatened the financial stability of the economy.

Several flights to quality are happening at the same time, Thielen's note said.

Traders and investors have shifted from higher beta – or more volatile – cryptocurrencies into bitcoin alongside a transition from stablecoins, which are less volatile. When Paxos Trust’s binance USD (BUSD) encountered regulatory scrutiny, money moved from BUSD to BTC, and when Circle Internet Financial's USD coin (USDC) lost its peg, money flowed from USDC. A stablecoin is a type of cryptocurrency whose value is pegged to another asset, usually the U.S. dollar.

In addition, the Fed’s policy of raising rates has led to falling prices of Treasurys, lowering the value of banks’ portfolios. The collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank (SBNY) has roiled financial markets this month.

The potential classification of some digital assets as securities has also become an overhang for many cryptocurrencies, the note added.

“While there appears to be a clear path to regulation, there is a specific understanding that some can escape regulation,” the report said, noting that regulators and central banks have classified bitcoin as a commodity, not a security.

Read more: Bitcoin Isn’t Trading as a Currency but as a Speculative Asset: Morgan Stanley