On Monday, the cryptocurrency market rallied even after regulators announced the closure of Signature Bank, the last major crypto bank in the U.S. This development came as a shock to crypto investors and entrepreneurs who fear that regulators are slowly suffocating the industry by forcing banks to cut off their businesses. Despite this closure, cryptocurrencies, especially Bitcoin, are enjoying a sustained surge amid a broader rally in risk assets.
The Cryptocurrency Market Rally
According to Coin Metrics, Bitcoin rose by more than 14% to $24,195.00, and it is now about 18% above its Friday levels. Ether also rose 9% to $1,680.19. Since the January rally in risk assets began to fizzle out, chart analysts have been looking for a meaningful break above $25,000.
This jump in risk assets came after U.S. regulators announced plans on Sunday night to backstop all depositors in failed Silicon Valley Bank and make additional funding available for other banks. Investors are also betting that the Fed will be less aggressive in raising interest rates now that authorities have stepped in to limit the fallout from SVB and Signature.
Noelle Acheson, economist and writer of the “Crypto is Macro Now” newsletter, said, “A slower hiking pace and a lower terminal rate, plus the likely injection of liquidity to prop up banks struggling to meet withdrawals (through the Bank Term Funding Program) imply greater market liquidity, even if this could be partially offset by higher volatility. Bitcoin is one of the most sensitive assets to market liquidity, since its ‘risk’ profile is unencumbered by earnings or ratings concerns.”
The Last Major Crypto Bank
In a joint statement by the Treasury, Federal Reserve, and FDIC, it was disclosed that Signature Bank was closed on the same day to prevent a spreading banking crisis. Sylvia Jablonski, CEO and chief investment officer of Defiance ETFs, said of Signature and Silicon Valley Bank, “Both banks had little diversification. With high risk often comes high reward, however, if the balance sheet behind the system crashes – while you have a Fed removing liquidity from the system and hiking rates – crypto startups and venture capitalists may have a long road to recovery.”
This news has raised concerns amongst investors and entrepreneurs that regulators are attempting to stifle the crypto industry by pressuring banks to cut off their business activities. Signature Bank was another famously crypto-friendly institution and the next biggest one next to Silvergate, which announced its impending liquidation last week. Despite Friday’s bad news surrounding Silvergate and SVB, Wall Street analysts had maintained buy ratings on Signature Bank.
The end of the Silvergate-Signature duo leaves crypto with few “on-ramps” that allow fiat money to flow into crypto assets. They helped solve this problem by creating easy banking services and payment platforms for crypto companies, namely, the Silvergate Exchange Network and Signature’s Signet platform.
The crypto market has shown a tremendous amount of resilience in the face of uncertainty and challenges. Despite the closure of crypto-friendly banks, the market has remained bullish, with investors continuing to bet on the industry’s potential. However, the current situation presents an opportunity for policymakers to take a closer look at the regulatory landscape surrounding cryptocurrencies and the banking sector. Ultimately, it is crucial to find a balance between promoting innovation and safeguarding financial stability.