The price of Bitcoin (BTC) has been on a wild ride over the past couple weeks, thanks to the rapidly unfolding U.S. banking crisis and the federal government’s efforts to limit the fallout.
Three banks have failed so far, and the Federal Reserve has launched an emergency lending program in an attempt to stem the panic.
Silvergate Bank, a bank that was deeply enmeshed in the world of cryptocurrency, closed its crypto payments platform on March 3 and announced liquidation on March 8. Startup lender Silicon Valley Bank announced its inability to meet obligations two days later. Federal regulators closed Signature Bank on March 12.
From the week of March 6 to March 10, BTC plunged more than 10%. However, as the U.S. government announced its intentions over that weekend to cover debts from Silicon Valley Bank and Signature Bank, consumer confidence sent Bitcoin’s price soaring more than 15% over the next 24 hours. BTC is currently up more than 28% since March 12.
Bitcoin chart by TradingView
Ethereum (ETH), the world’s second-largest cryptocurrency by market capitalization, followed a similar trajectory during the week of March 6. But it’s also regained the losses and then some. Over the past 10 days, ETH has bounced more than 13% higher.
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On the evening of March 12, the federal government ordered an emergency rescue of the U.S. banking system in an effort to stem the losses brought on by the collapse of Silicon Valley Bank.
Although there were initial reports that Treasury Secretary Janet Yellen was hesitant to cover losses from Silicon Valley Bank, the failure of Signature Bank on Sunday led the nation’s leading financial authorities to take drastic measures.
Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corp. (FDIC) Chair Martin Gruenberg said in a joint statement that every Silicon Valley Bank depositor would have access to all of their money come Monday.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
Regulators emphasized that “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Investors in cryptocurrencies like BTC and ETH felt immediate relief, and the positive sentiment spread throughout the crypto community. Binance Coin (BNB) was up more than 13% on the news. While other leading altcoins Cardano (ADA) and Polygon (MATIC) were both up more than 10% as well.
USDC Coin Regains Its Peg
In other important crypto news, Circle’s USDC coin regained its dollar peg after losing that important benchmark following Silicon Valley Bank’s announcement on Friday.
The fear among investors was that Circle kept a portion of its funds invested in the FDIC-backed bank. Afraid that the stablecoin issuer may not have the reserves to fund its obligations any longer, there was a slight run on the coin.
As USDC fell to around $0.86 per coin, crypto exchange Coinbase even halted trading on the coin to try and stem the losses while maintaining an all-important $1.00 peg.
However, following the announcement by U.S. authorities that the FDIC would be backing all of Silicon Valley Bank’s obligations, USDC regained its peg.
What Does Bitcoin’s Bounce Mean for Investors?
The big question facing investors is whether this is yet another sign that the Bitcoin bottom is in or if the refuge is merely a dead cat bounce—where prices temporarily rebound amid a longer-term negative trend, only to resume the downward fall after that.
While the bounce has provided a welcome reprieve, the reality is that we are in an unprecedented territory regarding the geopolitical climate, rampant inflation and the Fed’s stance on interest rates.
Anyone familiar with the industry knows that even at the best of times, predicting the short-term price action of digital assets is near impossible. That holds particularly true in this market environment.