Cryptocurrency prices have soared as investors breathed a sigh of relief that US regulators moved to bolster the US banking system after the collapse of Silicon Valley Bank.
Bitcoin and ether, the two most widely-traded coins, have surged by a fifth since their lows on Friday as traders were reassured by promises from US authorities that deposits at the failed Silicon Valley and Signature banks would be protected. Bitcoin jumped 6 per cent on Monday alone.
The two banks, along with Silvergate, which also failed last week, were used by crypto companies as the conduit for payments between crypto and sovereign money, and custody of assets.
The rising asset prices are a sharp reversal after months of pressure from US banking regulators, who have been closely examining the links between the world of crypto and the traditional financial system. Authorities have repeatedly warned banks of potential risks associated with holding crypto deposits.
Over the past five years banks such as Signature and Silvergate had sought to woo billions of dollars of deposits from crypto customers, building specialist payment networks to handle conversions from dollars into digital tokens.
The so-called stablecoin run by US company Circle, called USDC, also rallied after the Federal Reserve and Treasury boosted lenders’ access to quick cash following the government takeovers of Silicon Valley Bank and Signature. USDC is the second-largest stablecoin on the crypto market.
Stablecoins play a key role in connecting traditional and crypto markets, and traders use them like cash or a store of value between crypto trades. USDC typically tracks the value of the dollar one-for-one but traded as low as 88 cents on Saturday after Circle said it had an exposure of $3.3bn to SVB. The value of the USDC stablecoin rose to more than 99 cents on Monday.
“The Fed and others have indirectly helped to avert yet another crypto crisis,” said Ram Ahluwalia, chief executive of investment adviser Lumida Wealth Management. “They didn’t intend to bail out crypto, but the USDC stablecoin — and by extension the rest of the digital asset market — was a beneficiary to US regulators bailing out SVB depositors.”
Michael Safai, managing partner at crypto trading firm Dexterity Capital, said he had been worried by the widening gap between the price of USDC depegging and the dollar.
“It was definitely not going to be a good thing, and we’re glad it worked out the way it did all things considered,” he said.
Many of the listed crypto-related companies also rallied on Monday as stock markets reopened. Crypto exchange Coinbase rose 10 per cent, and miner Marathon Digital rose 20 per cent after it said its $142mn in cash at Signature was secure and available.
“Crypto is not going to live in a cartoon metaverse, it needs access to the real world. The industry’s weakest feature remains its links to regulated banking,” said Ilan Solot, co-head of digital assets at Marex, a financial services platform.