Crypto assets jump as investors seek alternatives after SVB failure

The price of Bitcoin, Ethereum and other cryptocurrencies rose on Monday as investors looked for alternatives to stocks and bonds, following the collapse of SVB and Signature Bank, the biggest US banking crisis since 2008.

The price of Bitcoin on Monday rose almost $4,000 from $20,577 to $24,060, an increase of over 15 percent. Ethereum rose over 9 percent to $1,665, according to crytpo website CoinDesk. Bitcoin is now close to the 2023 high, but still well below the peaks of 2020 or 2021 when Bitcoin peaked at $67,553.

Initially, the Silicon Valley Bank collapse was seen as potentially damaging to crypto prospects, as many crypto and blockchain-focused startups had deposits in the bank that may be frozen or lost. Investors had the same concerns over Signature Bank, which collapsed over the weekend.

But with the Biden administration guaranteeing deposits at stricken banks, confidence has flowed back into the crypto market.

Signature Bank had extensive real estate lending, but had recently expanded into crypto-based lending. According to Reuters, as of September, nearly a quarter of deposits — out of a total of $89 billion — came from the cryptocurrency sector. The bank announced in December that it would reduce its crypto-related deposits by $8 billion.

The bailout by the Federal Reserve on Sunday, which said it would act “in a manner that fully protects all depositors” gave crypto enthusiasts all the signals required for a rally in bitcoin and other assets.

As banking stocks have fallen, cryptocurrencies are starting to regain some appeal after what has been described as a “crypto winter”.

SVB grew to become the 16th largest bank in the United States despite remaining relatively unknown to the public. It boomed during the pandemic years when the startup tech sector thrived. As more and more homebound people spent money on tech gadgets and similar items, tech companies used SVB to hold their cash, much of which was used for salaries and business expenses.

Investor and entrepreneur Anthony Pompliano said in a tweet: “Very clear signal from the market that a decentralized currency that allows you to be your own bank is valued in light of recent developments.”

Neil Shearing, chief economist at Capital Economics, said in a note sent to Newsweek: “Two things will matter in the coming days and weeks. The first is whether the actions of the authorities succeed in maintaining (or restoring) the confidence of depositors and investors in the US banking system. The second question is whether there are any other institutions with similar vulnerabilities as SVB (or Signature Bank) lurking in the shadows either in the US or in other economies.”