Introduction:

Cryptocurrencies were created to become an alternative to the traditional banking system — in this scenario, a surge would make more sense than a drop in prices.

The cryptocurrency market was once again hit by a crisis coming directly from the traditional investment universe.

The banking crisis that is affecting the world this Friday (10) caused bitcoin (BTC) to fall more than 9% in the last 24 hours.

The rug pull hit the sector hard. The global value of cryptocurrencies lost approximately 8.25% of its value, dropping below $1 trillion.

It all started with Silvergate, the bank that bet all its chips on the cryptocurrency market — and ended up suffering from FTX's bankruptcy. Amid rumors of the institution's insolvency, the bank announced that it will cease operations.

In parallel, Credit Suisse, a traditional financial institution, postponed its 2022 balance sheet.

The bank had already released preliminary results on February 9, when it reported its second consecutive annual loss and projected continued losses this year.

To top it off, Silicon Valley Bank (SVB), which approved a capital increase of $2.25 billion after reporting a loss of $1.8 billion from the sale of assets, triggered a sell-off of financial sector assets worldwide.

Bitcoin vs. Banks: A Common Enemy

A scenario that has been dragging on since last year weighs negatively on both banks and cryptocurrencies.

We are talking about the increase in interest rates in the United States, led by the Federal Reserve (Fed, the American Central Bank).

In his latest speeches, the president of the institution, Jerome Powell, adopted a more aggressive tone against the relentless and growing US inflation—in other words, monetary tightening would continue for longer than imagined.

A scenario of high interest rates not only affects technology companies and cryptocurrencies—who rely on cheap credit to grow—but also the results of banks, which need to charge higher fees.

Cryptocurrencies Depend on Banks:

But the question that remains for crypto enthusiasts is: why does a banking crisis have a negative impact on bitcoin?

After all, cryptocurrencies were created to become an alternative to the traditional banking system — in this scenario, a surge would make more sense than a drop in prices.

But it's not that simple. Both bitcoin and other cryptocurrencies have ended up being incorporated into formal institutions, meaning there has been an approximation of these two universes.

According to data from Buy Bitcoin Worldwide, public and private companies hold a total of $11.2 billion in bitcoin.

Despite representing only 2.71% of all bitcoins available on the planet, the movements of these companies often directly affect the prices.

What to do with bitcoin now?

It all depends on the strategy adopted by the investor.

For those who believe in BTC fundamentals, it is not the time to sell. Holders (as long-term investors are called) believe that bitcoin can reach even higher price levels, despite the day-to-day bumps.

For those who like to trade cryptocurrencies, a traditional market rule applies: buy low and sell high.

But for both, the golden tip from industry analysts applies: don't allocate more than 5% of your portfolio in digital assets.

They are high-risk investments that require caution from the investor.