Why Coinbase, Bitcoin and Ethereum emerged today

What happened

The banking crisis of the past week had a bigger negative impact on cryptocurrencies and related companies than many investors expected. And right now, the market is cheering the federal government’s move to freeze customer deposits.

Shares of Coinbase Global (COIN 12.18%) traded as much as 14.34% higher on Monday after starting the day down 5%. On the cryptocurrency side, Bitcoin (BTC 17.21%) was up a whopping 16.9%, and Ethereum (ETH 12.19%) went up a whopping 13.3 percent.

So what

Coinbase was particularly affected by the collapse of Silicon Valley Bank. Center Consortium, which operates the USDC stablecoin, is 50% owned by Coinbase, and the entity had $3.3 billion in funds locked up in Silicon Valley Bank. Had these funds not been guaranteed, it is possible that the token could have collapsed. It might not have cost Coinbase much money, but it would have meant that hundreds of millions of dollars in interest income from the token would have stopped flowing to the company.

Bitcoin and Ethereum obviously also rose quickly, partly because of the banking news, but also because Binance said it will convert $1 billion of stablecoins into Bitcoin, Ethereum and other tokens. This will create a huge buying pressure for the cryptocurrency market.

As prices rose, liquidations drove further buying. According to Coinglass.com, $138 million of Bitcoin has been liquidated in the last 24 hours and $96 million of Ethereum has been liquidated. It’s like a short squeeze that pushes the values ​​even higher.

What now

For now, the worst news is behind the banking industry, and the crypto markets are reacting. But it’s worth pointing out that cryptocurrencies were built to take advantage of these kinds of weaknesses in traditional banks, not rise and fall with traditional banks.

I think the next few months will be important for the crypto industry. Some of the risks associated with the banking industry can be managed with crypto and it can help attract some new users. But the risk profile of cryptocurrencies cannot be simply correlated with traditional banks, or there is no point in moving.

There are certainly innovative products being built on the blockchain, but the economic disruption of cryptocurrencies is less well known. Bitcoin did not prove to be a hedge against inflation in 2022, and over the weekend it was not a hedge against traditional banking risk.

That didn’t stop crypto values ​​from rising on Monday, but I see more questions than answers from the industry.

One answer we got is that Coinbase’s USDC business will continue to go strong after accessing the funds it had on deposit with Silicon Valley Bank. The token may see some redemptions, but I wouldn’t be surprised if it becomes a mainstay in crypto, which would be good news for Coinbase’s long-term earnings profile.