Bank sector stress may provide a bullish case for cryptocurrencies. Here’s how

By Frances Yue

Hello! Welcome back to Distributed Ledger. This is Frances Yue, crypto reporter at MarketWatch.

A lot has happened during the past week — California’s Silicon Valley Bank (SIVB) collapsed in the second-largest bank failure in U.S. history, and New York-based Signature Bank (SBNY) was shut down by state regulators. Both happened days after crypto-friendly Silvergate Bank (SI)said it would wind down its operation.

The Federal Reserve on Sunday announced an emergency loan program to backstop depositors at both institutions and across the banking system.

Still, investors remain worried about other banks. First Republic Bank(FRC)’s shares lost about one-third of their value Thursday after Bloomberg reported that the bank is exploring its strategic options, including a potential sale of the company. The shares steadied after the Wall Street Journal reported that the biggest banks in the U.S. are discussing a joint rescue for the lender.

Meanwhile, Credit Suisse (CSGN.EB) on Thursday said it would borrow up to $54 billion from the Swiss central bank toboost its liquidity after its stock and bonds plummeted Wednesday.

Amid such stress in the banking system, bitcoin staged a notable rally, surging over 30% in three days from around $20,000 Sunday to above $26,000 Tuesday, before it pulled back slightly and traded slightly below $25,000 Thursday, according to CoinDesk data.

As always, find me on Twitter at @FrancesYue_ to share any thoughts on crypto, this newsletter, or your personal stories with digital assets.

Bullish catalyst for bitcoin?

The collapse of several banks recently highlights the potential use cases for blockchain technology, said Akbar Thobhani, chief executive at sFOX.

“What blockchain does, is it brings two people that really don’t have a reason to trust each other to be able to transact, knowing that the transaction will get done,” Thobhani said in a call.

“Generally, banks serve that need where you trust the bank to hold your money and be able to transact. But if that trust wavers even slightly, we saw what happens to the banks in less than 48 hours,” said Thobhani.

Specifically, bitcoin showed resilience in the recent turmoil, which may support the argument that though the crypto is not an inflation hedge, it is a hedge against “monetary irresponsibility,” analysts at crypto trading firm QCP Capital wrote in a Thursday note.

Thobhani attributed bitcoin’s recent rally in part to some investors’ confidence in banks being harmed.

Over the past weekend, some investors are unsure that which banks are safe. “I think a lot of people decided they would go in crypto so they’d be able to withdraw the coins on the weekend if they needed to, as opposed to waiting until Monday morning when the banks come online with all the uncertainty,” Thobhani said.

Crypto trades 24 hours a day, seven days a week, while banks are usually closed and do not process payments over weekends and on federal holidays.

To be sure, bitcoin is still highly volatile — the crypto prices are down more than 60% from its all-time high in 2021, according to CoinDesk data.

And the crypto industry is not isolated from troubles in the banking sector.

Collapsed Silvergate, Signature and Silicon Valley Bank were all once considered among the most crypto-friendly banks in the U.S., though Signature had been cutting its crypto-related deposits after the collapse of exchange FTX in November.

“The landscape [of banking for crypto] has definitely changed,” said Bobby Zagotta, chief executive at Bitstamp USA.

The collapse of Signature and Silvergate may make it more difficult for institutions to purchase cryptocurrencies with fiat currencies, and restrict liquidity across crypto trading platforms. MarketWatch’s Anushree Dave and I have written more about it here.

Crypto in a snap

Bitcoin rallied 17.6% in the past week and was trading at around $24,750 on Thursday, according to CoinDesk data. Ether gained 12% in the same period to around $1,662.

Biggest gainers  Price  %7-day return 
Halo Coin        $0.06  92.7% 
Conflux          $0.29  53.7% 
Stacks           $0.89  42.7% 
SingularityNET   $0.49  36.9% 
The Graph        $0.16  24.5% 
                        Source: CoinGecko 
Biggest Decliners  Price    %7-day return 
Maker              $726.95  -16.8% 
Huobi              $4.09    -15.4% 
Dash               $53.09   -9.1% 
Frax Share         $8.24    -7.9% 
OKC                $23.77   -7.6% 
                            Source: CoinGecko 

Crypto companies, funds

Shares of Coinbase Global Inc. (COIN) went up 16% for the week to around $67.33. MicroStrategy Inc. (MSTR) gained 14.4% thus far on the week, to $241.25.

Crypto mining company Riot Blockchain Inc. (RIOT) rallied 27%, to $7.04 as of Thursday. Shares of rival Marathon Digital Holdings Inc. (MARA) surged 39% to $7.65 over the past week. Ebang International Holdings Inc. (EBON) traded 12% higher over the past week to around $6.74.

Overstock.com Inc. shares (OSTK) edged down 0.9% to $17.93 over the week.

Shares of Block Inc. (SQ), formerly known as Square, gained 2.6% to $75.69 for the week thus far. Tesla Inc. (TSLA) shares rose 7% to $184.99.

PayPal Holdings Inc.’s (PYPL) stock dipped 2.2% over the week to trade at around $74.25. Nvidia Corp.’s (NVDA) went up 8% to $253.06 for the past week.

Advanced Micro Devices Inc. (AMD) shares went up 14% to $96.03 for the week.

Among crypto funds, ProShares Bitcoin Strategy (BITO) rallied 25% over the week to $15.36 Thursday, while counterpart Short Bitcoin Strategy ETF (BITI) plunged 24% to $24.03. Valkyrie Bitcoin Strategy ETF (BTF) surged 25% over the past week to $9.81, while VanEck Bitcoin Strategy ETF (XBTF) jumped 25% to $25.

Grayscale Bitcoin Trust (GBTC) advanced 21% over the past five days to $14.06 on Thursday.

-Frances Yue

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03-18-23 1505ET

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