Bitcoin Experiences its Biggest Jump in Weeks After US Backs Banking Sector

Published:

(Bloomberg) — Bitcoin soared the most in almost a month following US support for the banking sector and crypto companies saw their shares rally. This surge helped to extend the largest cryptocurrency’s recovery from its worst week in four months, as a selloff in equities, worries in the banking system and a US regulatory crackdown on crypto all combined to hit investor sentiment.

Most Read From Bloomberg

The depegging of the stablecoin USDC last Wednesday was followed by its return to par with the dollar, while Binance’s decision to convert the remaining funds from a $1 billion industry stability fund to Bitcoin, Ether and its BNB token added to the optimism. “Flows from stablecoins into the majors such as BTC and ETH definitely seem to be a popular narrative popping up,” commented Chris Newhouse, a crypto derivatives trader at GSR.

At 5 p.m. in New York, Bitcoin had risen 13% to $24,234. This was a significant increase since the beginning of November 10th, when markets were roiled by the FTX collapse. Over the weekend, US agencies guaranteed full protection of all depositors’ money, while the UK branch of the bank was sold to HSBC Holdings Plc for £1 on Monday morning.

Signature Bank – one of the few remaining crypto-friendly US banks after Silvergate Capital Corp closed earlier this month – was shut down by New York regulators on Sunday, with access to funds still available for depositors. These bank closures have rocked the crypto markets, prompting several big crypto companies, including Circle Internet Financial, Coinbase Global Inc. and Paxos Inc., to expose themselves.

Coinbase rose 11%, MicroStrategy Inc. added 16% and Marathon Digital Holdings Inc. posted a 26% gain. Altcoins, which are smaller cryptoassets, saw more modest gains, with Cardano rising 6% and Tron and Ether up 7.4% and 9% respectively.

The failure of SVB triggered a knock-on effect in the crucial stablecoin market, after Circle’s USDC operator revealed that the bank had $3.3 billion of reserves supporting the token. These cryptocurrencies aim to mirror a less volatile asset such as the US dollar and are a popular safety net for crypto investors looking to protect their value without having to exit into traditional currencies.

The news of SVB’s shutdown saw USDC slip far below its dollar peg – a major development in stablecoin terms – and sent shockwaves through the sector. By Monday morning, USDC was trading at par again.

“For crypto markets this means stablecoins are correcting and investors are now looking to hedge potential stagflationary forces by buying a range of assets, including BTC, ETH and altcoins alongside more traditional hedges such as gold and silver,” said Darius Tabatabai, co-founder at Vertex Protocol. “Given the headwinds faced over the last two years, this could be a significant turning point for the space.”

The depeg sparked a huge surge in volumes on decentralized exchanges – Uniswap and Curve being the two biggest – recording their highest daily trade volumes on the day. Curve’s 3pool, a liquidity platform that allows traders to swap three of the market’s top stablecoins, saw $4.8 billion in trade on Saturday. Users queued up to swap USDC and DAI for Tether’s USDT, the largest stablecoin by market circulation, after both USDC and DAI lost their dollar pegs over the weekend.

According to DeFi data, the total value of decentralized finance protocols dropped almost 10% to $38.6 billion in less than a day. Tether’s dominance rose even higher as traders sought safety in the least-regulated token, with $72.3 billion of the $135 billion stablecoin universe now accounted for by it. Investors have since pulled $3 billion from USDC rivals, with the price currently at $0.0 according to CoinGecko.

“Bitcoin is greatly helped by the bailout of SIVB and Signature,” said Peter Tchir of Academy Securities. “Given the role the two banks and their customer base played in the crypto ecosystem, the fact that uncertainty is reduced for both is boosting sentiment.”

–With Assistance from Sidhartha Shukla, Eva Szalay, Vildana Hajric And Isabelle Lee.

Most Read From Bloomberg Businessweek

©2023 Bloomberg L.P.

Related articles

Recent articles