What happened
Don't look now, but Bitcoin (BTC 4.48%) and other large-cap cryptocurrencies have made big moves over the weekend. As of 8:30 a.m. ET, Bitcoin, Solana (SOL 8.91%), and The Sandbox (SAND 4.58%) have gained 5%, 14%, and 8.9%, respectively, since 4 p.m. ET Friday. These moves have resulted in Bitcoin crossing the $28,000 threshold, its highest level in nine months.
This move also comes on a weekend during which more drama in the banking sector played out. Credit Suisse was bought out by fellow Swiss bank UBS Group in one of the most shocking consolidations among major global banks since the Great Recession.
So what
This $3.3 billion deal for Credit Suisse (less than half of Friday's closing price) comes with a number of liquidity provisions and guarantees. However, this deal also essentially wipes out $17 billion of Additional Tier 1 (AT1) bonds, leading to market concerns around the health of the $275 billion AT1 bond market in Europe.
The resulting moves from central banks globally to coordinate U.S. dollar-swap arrangements, in an effort to add liquidity to the global financial system, harken back to times of serious global economic strain (namely, the pandemic and Great Recession). So the U.S. dollar has shown weakness this morning, with equity markets set to open roughly flat.
The surge in crypto prices today appears to reflect the view among a significant subset of investors that digital currencies might hold some value as a hedge against what could be currency pressures in the U.S. and other developed economies.
Now what
Whether this safe haven view is warranted will be determined over time. That said, Bitcoin has traditionally been viewed as an asset class that should hold up relatively well, given its size and decentralized nature, in times like these.
For Solana and metaverse crypto project The Sandbox, the outsized gains investors have seen over the weekend appear to be related to these projects' higher-risk status within the digital assets space. With most cryptocurrencies gaining traction over the weekend, it's likely no surprise to see higher-risk digital assets providing greater gains during this upward trend.
I remain uncertain about the degree to which contagion concerns around the global financial system will remain a bullish catalyst for major cryptocurrencies. But for those who have diversified into this asset class (at least in part) due to the diversification and potential hedge these cryptos provide, this trade has worked out well thus far.
