Silicon Valley Bank fell, Bitcoin stood up

The traditional financial crisis has once again created the dream of wealth in the currency circle.

Written by | Liu Xingzhi

Edit | Zhao Jinjie

Source | Bento Finance (ID: daxiongfan)

Silicon Valley Bank single-handedly dragged down the stock prices of a number of small and medium-sized banks, and also pulled the already hot currency circle ashore.

On the evening of March 13, the world's largest cryptocurrency by market capitalization, Bitcoin, broke through the $24,000 mark, up more than 18% in 24 hours, and on March 14, the price of bitcoin once soared more than $26,000. Ethereum, the second-largest cryptocurrency, also touched $1,700 at the top, up nearly 15 percent.

While the Silicon Valley bank thunderstorm triggered a chain reaction that caused global financial stocks to lose more than $465 billion in panic, other investors were shouting "Long live the blockchain revolution!" on social media. ”（Long live the blockchain revolution）

Bitcoin exchange River wrote on Twitter: "A large number of new users are pouring into [the bitcoin market] and people are realizing the importance of sound money without counterparty risk." ”

The bigwigs in the coin circle also heard the wind. On March 13, Binance founder and CEO Changpeng Zhao tweeted that Binance will convert the remaining funds from its "$1 billion industry recovery plan" from BUSD to native cryptocurrencies, including BTC, BNB and ETH, given the changes in stablecoins and banks.

However, not all cryptocurrencies have benefited from this wave, such as Dogecoin, where Musk personally stood up.

Currently, the price of Bitcoin is approaching a six-month high of $24,809, and while Dogecoin has also gained around 10% over the past two days to $0.073, it is still down nearly 50% from its six-month high of $0.14.

However, whether it is the fate of Bitcoin or Dogecoin, Musk may not care. On March 6, Musk tweeted: "I used to be in love with cryptocurrencies, but I am now more interested in AI. ”

As Musk shifted, Tesla also sold bitcoin in large quantities last year. Tesla's financial filings with the U.S. Securities and Exchange Commission (SEC) show that as of December 31, 2022, Tesla has sold about 75% of its digital assets, holding only $184 million in digital assets, a year-on-year decline of 85%.

Cryptocurrencies didn't have a good time before the Silicon Valley Bank thunderstorm. Data show that on March 10, Beijing time, bitcoin was quoted at $20,325, down 6.4% in a single day, hitting the lowest value in nearly two months, and Ethereum followed suit, falling 6.2% to $1,437.

In fact, Bitcoin had a "good start" at the beginning of the year, rising from $16,600 and briefly breaking through the $25,000 mark in February.

However, on March 7, Fed Chairman Jerome Powell signaled tightening to the outside world, considering a 50 basis point rate hike this month. Aggressive rate hikes that exceed expectations mean that inflation may continue to fall, which is not friendly to cryptocurrencies that have anti-inflation properties to some extent.

To add insult to injury, just a day after Powell's speech, on March 8, Silvergate Bank, one of the US crypto banking giants, fell into a crisis of "insufficient capital" due to regulation and customer flight, announcing that it would end its business and liquidate. The combination of multiple factors contributed to the collapse of bitcoin in late February and early March.

At the end of last week, the news of the bankruptcy and liquidation of Silicon Valley Bank also made the cryptocurrency market buzz. Many cryptocurrency companies have admitted exposure to Silicon Valley banks, and Circle, the issuer of USDC, the world's second-largest stablecoin, revealed that the company has $3.3 billion in Silicon Valley banks, accounting for 8% of USDC's dollar reserves. As soon as the news came out, USDC, which was supposed to maintain a one-to-one with the dollar, fell as low as 86 cents.

The turnaround, however, came quickly, and after institutions such as the Federal Reserve announced their interventions, Circle CEO Jeremy Allaire said on Sunday that he would transfer $3.3 billion in cash held at failing Silicon Valley Bank to Bank Mellon in New York on Monday once the funds could be withdrawn.

The intervention was introduced, deposits were declared safe, and the USDC price quickly rebounded, reaching 99 cents at one point. The stablecoin's re-pegging to the US dollar has sparked optimism among investors.

In addition, the intervention of external intervention has led investors to bet that the Fed will slow the pace of interest rate hikes due to the thunderstorm of Silicon Valley banks, and most safe-haven assets have ushered in a rise. On March 13, the offshore yuan jumped 1,000 points, reaching a high of nearly 6.83 yuan, the highest since February 15, and the spot price of gold also jumped 2.4%, exceeding $1,900 per ounce, reaching the highest since February.

In the context of the crisis of confidence in banks, it is not surprising that the price of cryptocurrencies has skyrocketed, and bitcoin was born in 2008, the year of the subprime mortgage crisis, and then further spread in the European debt crisis, and the price rose sharply. It can be said that every crisis in the traditional financial industry after 2008 will create a series of myths of sudden wealth in the currency circle.

Behind Bitcoin's rollercoaster ride, some people are happy and some are worried.

The happiest thing is, of course, the exchange. Swan Bitcoin CEO Cory Klippsten was overflowing with joy, tweeting that "Swan's trading volume in the last 72 hours has been huge... Friends, please retweet this tweet for more people to see – people need to know that the solution is real."

Some practitioners directly shouted the slogan "Long live Bitcoin".

However, if someone makes money, someone loses. Cryptocurrencies are more volatile than other investments, and the risks involved are greater.

Coinglass data shows that within 24 hours of the March 8 cryptocurrency crash, the cryptocurrency market suffered a liquidation of $307 million, of which $282 million was long betting on the price increase, breaking the February 5 liquidation record of $254 million.

Just one weekend later, the rally in cryptocurrency prices dealt another blow to the bears. In less than a week, bulls and bears took turns to be hit.

For bitcoin spot traders, unless they entered the market at the low of last weekend, or before January this year, a fall and a rise only made up for the previous losses.

Of course, bitcoin investors are already a relatively lucky group of people, buying bitcoin at any point in time in the past six months, and the current yield is likely to be positive. In contrast, other kinds of cryptocurrency investors may not be so lucky.

In 2021, Musk began to fall in love with cryptocurrencies, frequently mentioning Dogecoin on Twitter, and this year he also appeared in the Super Bowl wearing a Doge T-shirt, and talked to media mogul Murdoch about Dogecoin, like the number one fan of Dogecoin. There are also rumors in the market that Musk is likely to be the largest anonymous wallet holder of Dogecoin.

Source: Twitter@Genevieve Roch-Decter, CFA

However, even with the endorsement of the former world's richest man, the price of Dogecoin remains depressed for now. If Dogecoin had been purchased in early November last year, the yield would have been stuck at an awkward -47.9%, even after the last two days of gains.

Angry investors have used Musk as an outlet for their grievances. Under Musk's Twitter ridicule of the Silicon Valley Bank incident, some users replied, "I put all my deposits into Dogecoin, but because of Elon Musk, I lost everything." ”

After this rally began, investors began to repeatedly chant the Bible: "Bitcoin below XXXXX dollars is a gift from God." "As the price of the coin continues to rise, this figure has climbed from $20,000 to $28,000, and market sentiment remains high.

But as the price hit the $25,000 mark, there was disagreement about Bitcoin's future.

The optimistic group believes that a slower pace of rate hikes and lower interest rates will increase market liquidity, although liquidity may be partially offset by volatility. "Bitcoin is one of the most liquid-sensitive assets in the market because its risk profile is not affected by earnings or rating issues." Economist and author Noelle Acheson said.

However, pessimists believe that the bitcoin price will come under pressure after this rise, which will then drive the entire cryptocurrency market back to the downside.

The Fed's support measures boosted both the stock and cryptocurrency markets overnight, but the panic continued to intensify, and bank stocks continued to plummet, with Sylvia Jablonski, CEO and chief investment officer of Defiance ETF, saying: "As the panic intensifies, we have to see how the market performs today in the follow-up." ”

The pessimistic argument is that under the panic of traditional banks and the blessing of long actions such as Changpeng Zhao, the market has ignored some adverse factors.

Silicon Valley Bank was not the only bank that went bankrupt last week, but Signature Bank and Silvergate Capital also collapsed.

These two banks are the largest cryptocurrency-friendly banks, and the end of the two banks has made cryptocurrencies almost lose the "entrance" of fiat money into crypto assets. This has raised concerns that regulators are pressuring the cryptocurrency industry by putting pressure on banks.

The impact of the incident is already being felt, and on March 14, cryptocurrency exchange Huobi Global said it had withdrawn all funds from bankrupt Signature Bank and Silvergate Capital Corp and transferred them to other financial institutions.

Under the superposition of positive and negative factors, many investors have calmly lowered their expectations and held a wait-and-see attitude. "When bitcoin breaks through and stands firm at the $25,000 mark, it will usher in an uptrend." Some investors said on social media.