Why Bitcoin, Ethereum, and Dogecoin Popped on Friday

What happened 

The fallout from the banking collapses last weekend has extended further into the regional banking sector this week, which has helped cryptocurrency values. It seems that banks collapsing makes the case for crypto more than any other event could have. 

Bitcoin (BTC 7.51%) has jumped 7% in the last 24 hours as of 11:20 a.m. ET, Ethereum (ETH 4.91%) is up 4%, and Dogecoin (DOGE 5.70%) has risen 4.8%. 

So what 

After working for months to undermine cryptocurrencies and keep banks from holding cryptocurrencies on their balance sheets, the collapse of Silicon Valley Bank (part of SVB Financial) and Signature Bank have shown that crypto may not have been the most significant risk in banking. The risk that rising interest rates posed on the value of long-term bonds brought these banks down. 

Depositors were saved in the case of these two banks, and First Republic got an infusion of $30 billion in deposits today to shore up the bank, but Treasury Secretary Janet Yellen fell short of saying that all bank deposits would be guaranteed. 

This begs a question about how safe deposits above $250,000 are in the U.S. banking system outside systemically important banks. So what alternatives are there?

One answer is cryptocurrencies, which can be held in self-custody through a hardware or software wallet. It’s the modern equivalent of putting cash under your mattress, and it seems that’s what some investors are doing today. 

Cryptocurrencies are up across the board, but it does appear there’s a flight to safety, with Bitcoin and Ethereum in particular being bid up today. 

Now what 

Whether the current banking crisis makes cryptocurrencies more viable as a way to store value or money isn’t known yet. But traders are currently better than the blockchain could actually solve some of these risks. 

Keep in mind that the crypto industry has survived the collapse of a highly leveraged hedge fund and an exchange that was committing fraud. Those would be extinction-level events in banking, but Ethereum, Bitcoin, and even Dogecoin have held up. 

To be clear, crypto isn’t ready to become the banking epicenter of the world, but there may be a more clear case for self-custody and digital assets playing a role in the economy than there was only a few weeks ago. The well-known cryptocurrencies are rising on that thesis. 

What I would caution is that this bounce may not be sustainable. Regulators may come up with a more permanent solution for the type of bank run we saw last week, and I’m also not sure that cryptocurrencies that can handle a few transactions per second will ever be used on a widespread basis.

It’s more likely that stablecoins on fast, cheap blockchains pose a challenge to traditional banks. That’s the kind of disruption that would help cryptocurrencies, but that’ll also take years to play out.