Steve Marcus/Reuters
- Wharton professor Jeremy Siegel said bitcoin's recent boost will fade out once people start trusting banks again.
- He said cryptocurrencies push a narrative that the conventional financial system is terrible, helping drive bitcoin gains amid a banking crisis.
- The world's largest cryptocurrency is trading around the $28,000 mark – it's highest level in nine months.
Wharton professor Jeremy Siegel has weighed in on bitcoin's recent rally, spurred on by the recent banking crisis.
"My feeling is when people feel they're safe in the banks again, bitcoin will go back down," the economist said in a weekly blog.
Bitcoin has enjoyed attractive gains in the wake of a string of bank collapses and expectations that the Federal Reserve will ease up on its aggressive interest-rate policy.
The world's largest cryptocurrency has surged about 37% since early March when chaos in the banking sector erupted due to the failures of Silicon Valley Bank and Signature Bank. Turmoil in the financial industry has extended through March, following the government-backed takeover of Credit Suisse by UBS in Switzerland, and escalating pressures on San Francisco-based First Republic Bank.
The logic behind bitcoin's gains seems to be tied to diminished confidence in the financial sector, causing investors to turn to the digital-asset industry which boasts benefits not offered by the US banking system – a decentralized currency.
"Bitcoin was launched with a mantra that the banking system was terrible, and the economy needed an alternative. So, the narrative is helping drive money into bitcoin with a 30% gain in the last week," Siegel said.
On Wednesday, bitcoin rose 0.82% to $28,269 in the 24 hours to 6:30 a.m. ET, according to CoinMarketCap data. That's its highest level in nine months.