Proactive Investors - Bitcoin (BTC) had every right to a miserable weekend after a week that saw crypto-adjacent bank Silvergate Bank finally fold after months of speculation, followed by yet another collapse in the form of Silicon Valley Bank (SVB).
Concerns mounted when USD Coin (USDC), the second-largest stablecoin and fifth-largest cryptocurrency in general, depegged from the dollar after developer Circle disclosed exposure to SVB.
Since all good things come in threes, another crypto-friendly financial institution, this time Signature Bank, entered into receivership on Sunday.
With the potent smell of Terra USD-style contagion hanging in the air, crypto investors had every right to exit their positions before the going got tough.
Here we go again, spectators thought. Well, it didn’t quite end up that way.
Bitcoin looked tetchy at first, especially after dipping close to the 20k mark on Thursday and finally crashing below the barrier on Friday.
But BTC/USDT fairly swiftly changed course, heading back above 20k on Saturday and roaring 7.5% higher to US$22,000 on Sunday.
This morning we’re seeing more bullish bitcoin action, with the BTC/USDT pair running upwards of US$22,300.
Bitcoin crisis? What crisis? – Source: currency.com
More crucially, USDC has just about reverted back to its dollar peg, staving off a large-scale crisis for now.
Perhaps as Hargreaves Lansdown (LON:HRGV) equity analyst Sophie Lund-Yates told Bloomberg, it was all “a little bit of a storm in a teacup”.
There are of course valuation concerns on the equities market which could rub off on risky assets like bitcoin.
Furthermore, as Lund-Yates said, a further 50 basis point rate hike by the US Federal Reserve this month is all but a given now, especially with persistently hot employment data.
Theoretically, these facts should all act as crypto headwinds, but the market doesn’t seem to have got the memo.
US regulators may have actually saved crypto’s skin this time, given that the Federal Reserve, US Treasury and FDIC banded together to ensure uninsured depositors, which made up around 95% of SVB, will be made whole.
This means SVB’s client base tech and venture funds shouldn’t lose their deposits, nor should they start withdrawing from other uninsured positions.
Mark Connors, head of research at crypto asset manager 3iQ, called the action "risk asset friendly at first blush".
So the regulators actually saved crypto last week? Quite the plot twist.
Ethereum (ETH) similarly did a dip and recover on the ETH/USDT pair, falling as low as US$1,370 on Friday before bouncing back up to US$1,600 as of Monday morning.
ETH has actually had a better week than bitcoin, adding 2% over the past seven days compared to bitcoin’s half a percent dip.
DeFi tokens heat up
Is it a coincidence that some of the top performers among the top-100 set are decentralised finance (DeFi) projects?
Decentralised derivatives exchange Synthetix (SNX) added 30% overnight, while Maker (MKR) and Lido (LDO), the two biggest DeFi projects, added 27% and 18% respectively.
Total value locked across all DeFi protocols added over 7% to US$45.7bn overnight.
Perhaps with the ongoing centralised banking crisis, people are putting their trust in alternative forms of wealth management.
As long as they’re aware that the DeFi space is far from a risk-free alternative.
Global cryptocurrency market capitalisation currently stands at US$1.02tn, having added 7% overnight.
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