The medium to long term outlook for the cryptocurrency market has been “reinforced to the upside” following recent turmoil in the U.S. banking industry, Coinbase (COIN) said in a report Friday.
“Cryptocurrencies have exhibited some resilience, in part due to technical reasons,” but also because more people “now appreciate the fundamental value proposition of having an alternative to the points of failure inherent in the traditional financial system,” wrote David Duong, head of institutional research.
The Federal Reserve’s policy of raising rates has led to falling prices of Treasurys, which lowered the value of banks’ portfolios. The ensuing collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank (SBNY) has created panic in financial markets and sent banking stocks tumbling in global markets.
The technology behind open blockchains and transparent smart contracts stands in “stark contrast to the poor risk management practices that led to the turmoil witnessed in the U.S. banking sector this week,” the report said.
This supports the argument in favor of digital assets as an alternative and as a viable solution to the “points of failure witnessed in the existing financial system,” the report added.
In the near term, crypto businesses may find the operating environment more challenging due to the loss of some fiat payment rails, the note added.