SVB collapse: Crypto stages a massive rally in wake of bank failure

SVB collapse: Crypto stages a massive rally in wake of bank failure

Bitcoin oneOther cryptocurrencies have made big gains during the fallout from the Silicon Valley Bank collapse.

Bitcoin rallied as fears about the banking system grew. Bitcoin hit as high as $26,400 on Tuesday, an impressive 34% increase from before SVB’s implosion on Friday. Ethereum had similar gains, hitting $1,780 earlier on Tuesday – 29% higher than Friday’s low.

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Bitcoin evangelists have argued for years that the cryptocurrency, and others linked to blockchain technology, represent a secure alternative to traditional banking systems, which are vulnerable to problems like the one that hit SVB.

Bitcoin is also insulated from the kind of bank runs that many feared would happen on Monday if the federal government hadn’t stepped in to ensure that all SVB customers would get their money back. In that scenario, people would rush to withdraw their money from the banks at a level that could cause a severe financial crisis.

Crypto apologists took to social media to highlight digital assets as resilient amid the banking chaos.

“We are seeing a huge flow of new customers. People are realizing the importance of sound money without counterparty risk,” crypto exchange River Financial tweeted.

Another crypto enthusiast called the rise a “historic pump” and tweeted that bitcoin offers a “safe haven for those fleeing degradation and counterparty risk.”

John Berlau, senior fellow and director of fiscal policy at the Competitive Enterprise Institute, said Washington Examiner that inflation may persist longer due to the SVB collapse. That’s because the Fed is likely to shy away from more large and aggressive rate hikes given the volatility of the situation, which means it could take longer to push prices down.

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A week ago, a notable group of investors expected a more aggressive rate hike. Now, there is now about a 25% chance of no rate hike at all, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for interest rates in the short-term market targeted by the Fed.

Tuesday’s consumer price index report, which tracked prices last month, also came in brighter than the month before. Inflation had been 6.4% the month before and has now fallen to 6%. Persistently falling inflation will also lend credibility to milder interest rate increases down the road.

Moody’s Investors Service on Tuesday changed the outlook for the entire US banking system from stable to negative.

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“We have changed to negative from stable our outlook on the US banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank (SNY) and the failures of SVB and SNY,” Moody’s said in a report.

It also said it is examining half a dozen other banks to determine whether to downgrade them.

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