Investors turn to Bitcoin and gold after SVB collapse

After a rollercoaster weekend, Bitcoin has rallied by around 20% in the last four days in the wake of the Silicon Valley Bank collapse.

It hasn’t been the best 12 months for crypto, which has been hit particularly hard by economic downturn and interest rate rises.

The industry took another blow last week when Silvergate Capital — an important lender in the crypto space — liquidated its banking operation. This caused chaos for cryptocurrency, which was further spurred by the shuttering of Silicon Valley Capital over the weekend.

Both institutions had cash tied up in US Treasury bonds, but had to sell at a loss to raise capital in the current high interest rate environment where less VC money was being thrown around and more startups were taking money out.

But things turned around for Bitcoin when the the US Treasury Department and the Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank deposits would be protected. This has now been extended to include New York’s Signature Bank collapse, which experienced its own bank run overnight.

But Bitcoin is now back up. At the time of writing, it’s sitting at $36,455 after a low of $29,819 on March 10. Ethereum has also rallied from a low of $2,095 to $2,528. The global cryptocurrency market cap also rose by 8.4% to US$1.06 trillion over the past 24 hours.

There have already been plenty of comparisons to what SVB has kicked off and the 2008 Global Financial Crisis (GFC). But this feels like another area of correlation. Bitcoin was created as a reaction to the GFC by an anonymous person going by the assumed name of Satoshi Nakamoto. They envisioned a peer-to-peer payment system that was decentralised and uncoupled from large banking conglomerates and offered full transparency.

Ironically, this financial utopia has resulted in bitcoin and other cryptocurrencies to be largely used as the Stock Market 2.0. And as we’ve seen over the last week, its value is still very much tied to banks and subsequent consumer confidence.

But it’s not just digital gold that is up. The last few days have also seen old gold (not the chocolate bar) jump 2.4% as investors flock back to a more traditional asset. Next, we’ll be taking a leaf from our grandparent’s books and stuffing cash under the mattress.

Interestingly, Nakamoto was partially inspired by the now-defunct gold standard while creating Bitcoin. Like gold, they wanted their cryptocurrency to be internationally used, but stateless. They also wanted it to be limited in supply. There are only 21 million bitcoin — not all have been mined yet — and there will never be any more. Much like how banks and governments can’t create more gold.

But despite Bitcoin being back up, there is still concern over financial institutions with significant exposure to cryptocurrency. Signature Bank had a total of US$82.6 billion in deposits, roughly 30% of which were involved in cryptocurrency in some capacity. And with no closing bell in the land of crypto, anything can happen.