Crypto Market Surges as Safeguards for Banks Provide Relief By Investing.com

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© Reuters

By Geoffrey Smith 

Investing.com — Cryptocurrencies experienced a surge on Monday following the U.S. government’s measures to protect two of the biggest regulated banks in the sector from any potential losses.

The U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corporation announced on Sunday that they would guarantee deposits of both Silicon Valley Bank (NASDAQ:) and Signature Bank (NASDAQ:). These two banks provide essential banking services to some of the crypto industry’s major players.

The news removed the risk of billions of dollars held by entities such as Coinbase (NASDAQ:) and issuer Circle being lost as part of the rescue plans for the banks. The crypto market is still recovering from the collapse of FTX late last year, which has sparked increased scrutiny of the digital asset industry in terms of its relationship with the regulated banking system and the potential for bad governance in the crypto space to spread to Main Street financial institutions.

One of the biggest gainers on Monday was USD Coin, a stablecoin issued by Circle. The firm has $3.3 billion of its reserves deposited at Silicon Valley Bank, an amount that significantly exceeds the federally-guaranteed limit. The risk of a “haircut” on its deposits had driven USD Coin down to as low as 88c on Saturday, but the coin, which is designed to maintain a value of $1, had recovered to 98.61c by 04:45 ET (09:45 GMT). Other stablecoins also benefitted, with rising to 98.41.

More mainstream digital assets enjoyed a surge due to the implications of the government’s action for the security of reserve assets and the impact of the weekend’s developments on the outlook for interest rates.

Various banks, including Goldman Sachs, now believe that the Federal Reserve will be more cautious about any further moves to tighten monetary policy, worried about further damage to the banking system.

Short-term U.S. interest rate futures jumped on Monday morning in Europe as traders reduced their bets on a rate hike. By 04:45 ET, the market indicated that the most likely outcome of the Fed’s meeting next week is now no change to the . Previously, the consensus had been for a 25 basis points increase, with a substantial minority wagering on a half-point rise following a raft of stronger-than-anticipated economic data since the start of the year.

was up 8.1% at $22,039, while was up 8.0% at $1,575.

 

 

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