Cryptocurrency prices surge on support for Silicon Valley Bank depositors

The prices for cryptocurrencies have soared as investors breathed a sigh of relief that US regulators wanted to prop up the US banking system following the collapse of Silicon Valley Bank.

Bitcoin and Ethereum, the two most traded coins, are up a fifth from Friday’s lows as traders were reassured by promises from US authorities that deposits at the failed Silicon Valley and Signature banks would be protected. Bitcoin rose 6 percent on Monday alone.

The two banks, along with Silvergate, which also failed last week, have been used by crypto companies as a channel for payments between crypto and state money, as well as for custody of assets.

Soaring asset prices are a sharp reversal after months of pressure from U.S. banking regulators, who have scrutinized the connections between the crypto world and the traditional financial system. Authorities have repeatedly warned banks about potential risks associated with holding crypto deposits.

Over the past five years, banks like Signature and Silvergate had attempted to poach billions of dollars in deposits from crypto customers by building specialized payment networks to handle the conversion of dollars into digital tokens.

The so-called stablecoin of US firm Circle, called USDC, also rallied after the Federal Reserve and Treasury Department improved lenders’ access to quick cash following the government’s acquisition of Silicon Valley Bank and Signature. USDC is the second largest stablecoin in the crypto market.

Stablecoins play a key role in connecting traditional and crypto markets, and traders use them like cash or as a store of value between crypto trades. The USDC normally tracks the value of the dollar one-for-one but traded as low as 88 cents on Saturday after Circle said it had a $3.3 billion exposure to SVB. The value of stablecoin USDC surged above 99 cents on Monday.

“The Fed and others indirectly helped avert another crypto crisis,” said Ram Ahluwalia, chief executive of investment advisor Lumida Wealth Management. “They had no intention of bailing out crypto, but the USDC stablecoin — and by extension, the rest of the digital asset market — has been a beneficiary of US regulators bailing out SVB depositors.”

Michael Safai, managing partner at crypto trading firm Dexterity Capital, said he was concerned about the widening gap between the price of USDC depegging and the dollar.

“It definitely wasn’t a good thing and we’re glad it all worked out that way,” he said.

Many of the listed crypto-related companies also rallied on Monday as stock markets reopened. Crypto exchange Coinbase is up 10 percent and miner Marathon Digital is up 20 percent after saying his $142 million in cash is safe and available with Signature.

“Crypto will not live in a cartoon metaverse, it needs access to the real world. The weakest feature of the industry remains its connection to regulated banking,” said Ilan Solot, co-head of digital assets at Marex, a financial services platform.