Crypto market resilient after collapse of SVB bank
As the Federal Reserve seeks to calm financial markets following the collapse of Silicon Valley Bank, the cryptocurrency market is showing signs of resilience despite links to the crisis.
“Stablecoin” USDC, which is pegged to the dollar, only fell after its creator Circle said it had a significant investment in SVB.
Last week also saw the collapse of US-based Signature Bank and peer Silvergate – and the combined turmoil marked the biggest bank failures since the 2008 global financial crisis.
Despite the huge fallout, the USDC has recovered and crypto king bitcoin rose to a nine-month high above $26,300 on Tuesday.
This contrasts with the collapse in cryptocurrency values following the bankruptcy of crypto exchange FTX in late 2022.
“The long-term concern is the future of fiat banking partners for crypto companies,” said Clara Medalie at Kaiko, a provider of digital asset data and information services.
“Silvergate and Signature were hugely important for crypto companies in the industry and right now there are no strong alternatives,” she told AFP.
While stock and commodity markets have fallen in recent days, bitcoin has risen by about a third since Friday.
The decentralized cryptocurrency, launched in 2008 by opponents of bank bailouts from the likes of the Fed and the US Treasury, has ironically benefited from their actions in recent days.
America’s top financial bodies unveiled a series of measures over the weekend aimed at restoring confidence in the banking sector and settling turbulent markets.
– Fat support –
These included plans to ensure SVB’s customers have access to all their deposits in the bank.
But while the United States has moved to protect customer deposits, it will not save the bank’s investors, President Joe Biden insisted on Monday.
Analysts said bitcoin’s rise was also fueled by the world’s biggest crypto exchange Binance investing $1 billion in digital assets thanks to money from a relief fund it set up after the collapse of FTX.
“This move was enough to cause an initial breakout in the markets,” Medalie noted.
Bitcoin is also benefiting from expectations that the Federal Reserve may decide to ease the size and pace of its next interest rate hikes aimed at cooling rising inflation.
SVB’s problems were triggered by customer withdrawals that led the company to liquidate securities positions whose values had fallen due to the Federal Reserve’s interest rate hikes.
The rapid jump in interest rates meant that the securities they had bought were sold for significantly less.
Crypto, like other risky assets, has benefited in the past from lower prices that encourage investors to be less cautious.
“As it has become clear that aggressive monetary policy has begun to break things in the banking sector… expectations of further rate hikes are falling, benefiting bitcoin,” said James Butterfill, head of research at Coinshares.
But he warned that “institutional buyers of bitcoin … remain in the minority”.