This could be Bitcoin's "time to shine" as holders of the largest cryptocurrency in private wallets should be safeguarded from counterparty risk, Morgan Stanley said in a research paper on Monday as concerns about traditional banks grow in the wake of the forced closures in the U.S.

According to Morgan Stanley, the idea behind bitcoin was to allow users to keep money in a secure digital wallet without the need for a third party to act as a middleman and facilitate transactions.

As its price is backed by "USD bank liquidity," which causes it to trade as a speculative asset rather than a currency, "bitcoin isn't insulated from the traditional financial system" in practice, the paper added.

According to researchers Sheena Shah and Kinji C Steimetz,

“Crypto prices rose quickly in 2020/21 due to central bank monetary expansion, causing capital to move from the traditional fiat banking world to the crypto world.”

While the Bitcoin network can function without banks, the price of BTC and, consequently, its purchasing power, are still impacted by central bank policy, and banks are required to enable flows into the cryptocurrency market.

“If bitcoin had been trading on its core value proposition – the ability to ‘be your own bank’ – then bitcoin would have rallied with rising bank uncertainty,”

...the note added.

Price movement suggested that, as opposed to a "fundamental shift in the trading dynamic," a short squeeze likely supported the earlier-in-the-week surge, which was led by a small number of market players.

Shorting is a strategy for wagering on a falling asset price. In the hopes that the price would fall, an investor borrows a security and sells it. They then buy the security again and give it back to the lender, keeping the price difference for themselves. When an asset's price increases and short-term investors are compelled to cover their holdings at a loss, this is known as a short squeeze.

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