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SVB collapse: Crypto stages massive rally in wake of bank failures

By Zachary Halaschak,

2023-03-14

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Bitcoin a nd other cryptocurrencies have been notching huge gains during the fallout from Silicon Valley Bank’s collapse .

Bitcoin surged as the fears about the banking system rose. Bitcoin reached as high as $26,400 on Tuesday, a stunning 34% increase from before SVB’s implosion on Friday. Ethereum had similar gains, reaching $1,780 earlier on Tuesday — 29% higher than Friday’s trough.

SVB COLLAPSE: WAS IT A BAILOUT?

Bitcoin evangelists have been asserting for years that the cryptocurrency, and others tied to blockchain technology, represent a secure alternative to traditional banking systems, which are vulnerable to problems like the one that befell SVB.

Bitcoin is also insulated from the type of bank runs that many feared would happen on Monday if the federal government hadn’t rushed in to assure all clients of SVB would get their money back. In that scenario, people would be rushing to pull their money from banks at a level that could cause a serious financial crisis.

Crypto apologists took to social media to tout digital assets as resilient amid the banking chaos.

“We are seeing a huge flow of new customers. People are realizing the importance of sound money with no counterparty risk,” crypto exchange River Financial tweeted.

Another crypto enthusiast called the rise a “historic pump” and tweeted that bitcoin offers a “safe harbor to those fleeing debasement and counterparty risk.”


John Berlau, a senior fellow and director of finance policy at the Competitive Enterprise Institute, told the Washington Examiner that inflation may persist for longer because of the SVB collapse. That is because the Fed is likely to shy away from more big and aggressive rate hikes given the volatility of the situation, meaning that it might take longer to drive down prices.

A week ago, a notable contingent of investors was expecting a more aggressive rate hike. Now there is now about a 25% chance of no rate hike at all, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.

Tuesday’s consumer price index report, which tracked prices last month, also came in lighter than the month before. Inflation had been running at 6.4% the month before and has now dropped to 6%. Persistently declining inflation would also lend credence to lighter rate hikes down the road.

Moody's Investors Service on Tuesday changed its outlook on the entire U.S. banking system from stable to negative.

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“We have changed to negative from stable our outlook on the U.S. banking system to reflect the rapid deterioration in the operating environment following deposit runs at Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank (SNY) and the failures of SVB and SNY,” Moody's said in a report.

It also said that it is examining a half-dozen other banks to decide whether they should be downgraded.

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