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Bitcoin might be the gold of the future, but for now institutional investors prefer the genuine article.

Bank failures that began in March spurred professional traders to add heavily to their exposure to gold futures even as they pulled back on engaging with crypto, according to a Thursday note by J.P. Morgan analysts.

Bullion is seen as a hedge against potential catastrophe, but since it doesnt pay interest, it is less attractive when rates are high. And while the bank crisis not only makes a broad financial disaster look more plausible, it also increases the likelihood the Federal Reserve could pause hikes or even cut rates.

Bitcoin doesnt have a historical track record, but proponents think it has similar properties, such as a limited supply and low correlation with stocks, that could make it a digital replacement for gold. The tokens price has surged about 44% to $29,387 since regional banks started to teeter in early March.

But when choosing which asset to lean on, big and small investors seem to have diverged, J.P. Morgan said.

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Between March and early May, money managers added heavily to their exposure to gold futures, building a net long position of around $20 billion. Meanwhile, the amount of gold held in exchange-traded funds, a proxy for retail gold interest, rose only slightly.

Investor interest in Bitcoin has gone the opposite direction. Bitcoin futures data analyzed by J.P. Morgan seems to show money managers didnt buy into the tokens even as retail investors drove prices higher.

There are myriad reasons why institutions might be hesitant to seize on Bitcoin as a hedge against catastrophe. For one, Bitcoin has only been around for 14 years and has never faced a severe banking crisis. And while gold prices can be volatile, Bitcoin puts the precious metal to shame. Even with the surge, prices are still down more than 50% from their November 2021 peak.

But more than that, the analysts note, the U.S. is in the midst of a regulatory crackdown on crypto assets with uncertain repercussions for token prices. Regulators have blamed the failures of Silvergate Capital Corp. (ticker: SI) and Signature Bank

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It is hard to see Bitcoin as a shelter from the storm while it is in the sights of Uncle Sam.

Write to Joe Light at joe.light@barrons.com

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Bitcoin or Gold? Big Investors Think It's a No-Brainer. - Barron's

The United States banking system is in trouble as over 2,300 financial institutions could have more liabilities than assets, recent analysis reveals. Subsequently, analysts say this could boost Bitcoin prices in the weeks and months ahead if the government doesnt proceed carefully.

The US Treasury and Federal Reserve say that the problems are peculiar to just individual banks, but experts are warning that the situation is much worse than the government admits.

With the anti-inflationary measures in place, almost half of Americas 4,800 banks are burning through their capital buffers, and there is still more tightening to come from the Fed.

The full effect of monetary tightening by the Fed has yet to hit the economy, and only then would experts know whether the United States financial system will be able to safely deflate the excess leverage induced by extreme monetary stimulus during the pandemic between 2020 to 2021.

The White House did not offer a blanket guarantee for all deposits because that would look like social welfare for the rich. Besides, the Federal Deposit Insurance Corporation (FDIC) reportedly has only $127 billion of assets and may require its own bailout.

For that reason, financial institutions are now pressuring the United States Securities and Exchange Commission to crack down on short-selling strategies that profit when bank stocks slide.

Lindsey Johnson, CEO of the Consumer Bankers Association, urged policymakers to take a serious look at the financial havoc wreaked by short-sellers.

The turmoil in the banking industry is a concern for the Biden administration. If thousands of banks in the United States were to fail, it is possible that some investors could turn to Bitcoin as a way to protect their assets.

With the Biden administrations stance on cryptocurrencies, any action that places the banking system in jeopardy could drive Bitcoin prices higher, even above $40,000.

The SEC is not currently contemplating any ban on short-selling bank stocks, according to a senior agency official.

In 2008, the SEC called time-out on short-selling on nearly 1,000 financial stocks in a bid to restore faith in public markets. However, the New York Fed later found that the ban did little to stem the financial stock market that was flaying out of control.

Another study discovered that most of the stocks protected by the ban lost the citizens confidence, suffering a severe degradation in market quality, price impact, and volatility.

As financial institutions press the SEC to take action against short-sellers, and their role in the market, which is impacting Americans confidence in the financial system. Yet, any careless moves to pull the pin could create more fissures, possibly buoying crypto and bitcoin prices.

Feature Image From Canva, Chart From TradingView

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If Over 2,300 Banks In America Are Bankrupt, Will Bitcoin Break Above $40,000? - NewsBTC

Illustration by Mitchell Preffer for Decrypt.

After posting small gains last weekend, the price growth of crypto market leaders Bitcoin (BTC) and Ethereum (ETH) slowed to effectively nothing this week.

Bitcoin remains at the level it was this time last weekend, hovering around $28.820, a decrease of about 5% from its April high of $30,979 set nearly three weeks ago but still about 77% up from the start of January when the price was $16,615.

Ethereum added 4.2% to its value over the seven days and currently changes hands at $1,885, a decline of about 7% from its 2023 high of $2,129 set in mid-April and 66% up from January 1, when the price was $1,197.

TRON experienced the most growth this week and was the only top thirty cryptocurrency to grow by 8% over the week to trade at $0.070261 at the start of the weekend.

All other leading cryptocurrencies remain virtually unmoved over the last seven days.

The markets lack of growth this week is at least partly attributable to the Feds decision to hike interest rates by another 25 basis points to fight inflation, the tenth consecutive hike since March last year.

In macroeconomic terms, interest rate hikes tend to drive investors away from risk-on assets like stocks and crypto as the cost of borrowing rises, making money more expensive and thus discouraging more speculative investments.

On Tuesday the White House released a report reinforcing the idea of a Digital Asset Mining Energy tax (DAME). It would apply to miners of both proof-of-work and proof-of-stake cryptocurrencies, despite their different levels of energy consumption, andbeginning in 2024 assessing a tax thats based on their electricity costs, starting at 10% and increasing each year until it reaches 30%.

The proposal has already received heavy pushback from the crypto industry, especially because it doesnt take into account the energy sources of the mining companies. Critics argue that the U.S. government is making a value judgment on crypto mining as a bad (or consumptive) activity regardless of whether a miner uses renewably-sourced energy or not.

A 2024 Presidential hopeful for the Democrat party, Robert F. Kennedy Jr., on Tuesday tweeted that he believes there is a top-down war on crypto that had something to do with the recent collapses of Silicon Valley Bank, Silvergate and Signature.

Barely a month ago, Kennedy posted a long rant on Crypto Twitter railing against the idea of a dollar-pegged cryptocurrency being released by the Federal Reserve. However, Kennedys thread was based on a misreading of an article about The Feds new digital payments system FedNow, which has nothing to do with central bank digital currencies (CBDCs).

Meanwhile, in the red corner, Republican Florida governor Ron DeSantiswho is widely expected to run as a Presidential candidate next yearonce more pushed back against CBDCs at a press conference on Tuesday titled "Government of Laws, Not Woke Politics."

DeSantis aired a package of bills opposing "'Environment, Social, and Governance" or ESG policies. ESG policies evaluate factors beyond fiscal performance in evaluating a company or organization, such as environmental and community impact. One example is the White Houses DAME tax mentioned above.

DeSantis criticized the ESG approach as virtue signaling and tied the concept of a CBDC to ESGs "woke" practices by saying that CBDC advocates "will impose ESG and social credit scores onto that, and that's going to be a huge reduction in freedom for people in this country." His words echoed his earlier remarks that a U.S. CBDC would be Big Brothers Digital Dollar."

Finally, in adoption news, famed auction house Sothebys on Monday launched an on-chain NFT marketplace for secondary NFT sales, enabling collectors to list and make offers on work from artists.

Argentine crypto fans fear they could be witnessing the start of a crypto crackdown, meanwhile. On Friday the countrys central bank banned payment platforms from offering crypto trading services to their customers.

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This Week in Coins: Bitcoin and Ethereum Stand Still After Fed Rate Hike - Decrypt

Cryptocurrency exchange Binance temporarily paused Bitcoin withdrawals on its platform on Sunday, preventing the largest token by market cap from leaving the leading venue by trading volume.

Binance said its decision was based on congestion issues impacting Bitcoins network, adding that the exchange was currently working on a fix to reopen withdrawals as soon as possible.

During the outage, speculation about the cause was rampant on Crypto Twitter. One large Twitter Spaces conversation ran the gamut from Ordinal-focused technical theories to international political conspiracies.

Binance reported an hour later that Bitcoin withdrawals had resumed.

Bitcoin was slightly in the green as of this writing, up less than 1% to around $29,000, according to CoinGecko. Meanwhile, crypto exchange OKX said Bitcoin deposit and withdrawal services were working fine, despite high transaction costs.

Before theyre added to Bitcoins blockchain, transactions are broadcast to the networks mempool where they wait to be selected by miners and inserted into Bitcoins next block. Currently, a sizable backlog of Bitcoin transactions is driving up transaction fees.

As of Sunday afternoon, the total number of unconfirmed Bitcoin transactions in the network's mempool totaled around 395,000, according tomempool.space. On April 26, that figure was 56,500, according to Blockchain.com.

At the same time, transaction fees on Bitcoin were sky-high. According to data from YCharts, Bitcoin transaction fees reached their highest levels in almost two years on Friday, averaging $9.62 per transaction.

On Saturday, transaction fees averaged around $8.84, suggesting they were trending back down. Still, it represented an over 500% increase compared to six months ago, when Bitcoin transactions averaged around $1.45.

The uptick in congestion and higher transaction fees coincides with a steep rise in the number of inscriptions made through Ordinals, as people use the protocol for minting NFT-like assets on Bitcoin to create and trade fungible, BRC-20 tokens.

Started as an experiment in March by a pseudonymous on-chain data enthusiast named Domo, the market cap of BRC-20 tokenswhich mirror ERC-20 tokenshas ballooned to $446 million, according to brc-20.io.

A week ago, the total number of inscriptions snowballed past 2.5 million. And as of Sunday, the total number of inscriptions cruised past 4.3 million, according to a widely-used Dune dashboard.

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Binance Pauses Bitcoin Withdrawals, Blames Network Congestion - Decrypt

Controversy Rises as Bitcoin Transaction Fees Continue Climb to Historical Highs

A recent phenomenon in the Bitcoin network has raised some concerns among users and observers. Some transactions are embedding images, texts, and other data into Bitcoin's blockchain using a technique called Ordinals Inscription. This process takes advantage of some updates to Bitcoin's code that allow for more flexibility and scalability, such as SegWit and Taproot.

However, not everyone is happy with this trend. Some critics argue that the ordinals protocol is an attack on Bitcoin's fungibility, meaning that each bitcoin should be indistinguishable from another. They claim that by adding arbitrary data to the blockchain, ordinals make some bitcoins more valuable or desirable than others, depending on their content. For example, some ordinals inscriptions contain NFTs or digital art that could have a market value.

Another concern is that ordinals could pose a threat to Bitcoin's mission in El Salvador, where it is legal tender. Some fear that by filling up the blockchain with unnecessary data, ordinals could increase transaction fees and congestion, making Bitcoin less accessible and affordable for ordinary people.

Ordinals are a controversial topic in the Bitcoin community, and there is no clear consensus on whether it is an improvement or an attack. Some see it as a way of expressing creativity and innovation, while others see it as a way of abusing and undermining Bitcoin's core principles.

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Controversy Rises as Bitcoin Transaction Fees Continue Climb to Historical Highs - Yahoo Finance