SVB, Signature Shutdowns Not Chilling Crypto

Illustration of cryptocurrency peeling off of smartphone

Regulators shutting down both Silicon Valley Bank and New York-based Signature Bank this week — not to mention the liquidation of Silvergate Capital just last week — seemed like it would cause serious trepidations in the crypto market.

However, if crypto has proven anything through the years, it’s that it will do the unexpected.

Bitcoin prices are up nearly 25% since SVB’s troubles came to light, while ether prices have jumped more than 20% in that same time period.

To be sure, SVB is the bank dominating headlines right now and is not nearly as intertwined into the crypto marketplace as Signature and Silvergate. Both those banks had heavy crypto ties, with two of the biggest 24-hour payment systems available to investors.

Nevertheless, SVB had both crypto startups and investors as depositors — with their money in limbo until bank regulators announced a plan Sunday to make them whole. 

SVB played a role in perhaps the largest crypto scare over the past weekend, when Circle — an issuer of the stablecoin popular USD Coin — announced it had $3.3 billion stuck at SVB. 

A slight panic overtook the industry, as USD Coin is a popular stablecoin for investors to park and store money in. The stablecoin — which is supposed to be pegged to the U.S. dollar at a one-to-one rate — dropped several cents below $1. 

However, even that fright lasted only briefly — like other depositors, Circle had access to its funds Monday — and crypto prices have remained robust.

The fall of SVB and the other banks may actually have brought in some small increase in confidence from investors in decentralized finance. Bitcoin was created due to the global financial crisis of 2008 and people’s distrust of structured financial systems after all.

That confidence is not at an all-time high right now.

That does not mean crypto is set to take off to November 2021 highs. Significant issues remain, like large exchanges such as Coinbase likely need to find some new banking partners. 

The SVB bank run also illustrated what a liquidity crisis can look like — something to which crypto is still susceptible.

The current crypto gains also seem to be bucking the trend of prices being correlated to the broader market — something that seems unsustainable with so many large financial institutions being active in crypto.

Nevertheless, at least for a moment decentralized finance may be showing some of the promise that it has.

Related reading:

Illustration: Dom Guzman

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