Cryptocurrency prices have seen an upswing following the US government’s decision to shore up the US banking system after the collapse of Silicon Valley Bank.
Bitcoin and ether have both seen a 20% increase in their market value since hitting their lows on Friday, with Bitcoin in particular rising 6% on Monday alone. This comes as a result of the assurance from the US authorities that deposits made in the now-defunct Silicon Valley and Signature banks will be protected.
These two banking institutions, in addition to Silvergate, were being utilized by crypto companies as the bridge between conventional money and digital tokens, as well as for the custody of assets.
The recent surge in asset prices is a stark contrast to the pressure that US banking regulators have been putting on the crypto market over the past few months, warning banks of the potential risks associated with dealing in digital currencies.
In the past five years, Signature and Silvergate had been attempting to attract billions of dollars in deposits from crypto customers, setting up a specialized payment network to handle the conversion from dollars to digital tokens.
The USDC stablecoin issued by US firm Circle has also gained in value as the Federal Reserve and Treasury provided lenders with access to quick cash after the takeovers of Silicon Valley and Signature banks. USDC is currently the second-largest stablecoin in the crypto market.
Stablecoins are important for connecting the traditional and crypto markets, as traders use them like cash or to store value between trades. USDC usually reflects the dollar’s value one-for-one, but it was trading as low as 88 cents on Saturday due to Circle’s $3.3bn exposure to SVB. On Monday, USDC’s value increased to over 99 cents.
“The Fed and other institutions have inadvertently contributed to averting another crypto crisis,” said Ram Ahluwalia, chief executive of Lumida Wealth Management. “They didn’t plan to bail out crypto, but USDC stablecoin – and by extension the rest of the digital asset market – gained from US regulators rescuing SVB depositors.”
Michael Safai, managing partner at crypto trading firm Dexterity Capital, admitted to being worried by the widening gap between the USDC’s depegging from the dollar. “It wasn’t going to be a good thing, and we’re glad it worked out in the end,” he said.
Crypto-related companies have also seen a boost in their stocks, with Coinbase rising 10% and Marathon Digital climbing 20% after confirming that their $142mn cash at Signature is safe and accessible.
“Cryptocurrency can’t exist in a vacuum, it needs to be connected to the real world,” said Ilan Solot, co-head of digital assets at Marex. “The industry’s weakest point is still its ties to regulated banking.”
