Why Crypto Is Surging After the Silicon Valley Bank Collapse
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Cryptocurrency prices are skyrocketing in the wake of two major bank collapses in the past week. Bitcoin prices have soared more than 27% since Friday, surpassing $26,000 per coin — their highest level since last summer. The price of ether has risen nearly 22% over the same period.
What’s going on
Those massive gains came after Silicon Valley Bank (or SVB), which built its business lending money to startups, was taken over Friday by regulators in the largest U.S. bank failure since the financial crisis in 2008.
SVB’s investments had endured major losses as the Federal Reserve hiked interest rates at the same time that a number of depositors attempted to withdraw their money. SVB was forced to sell investments at a major loss to meet the demand, and that triggered a fear-induced scramble among other depositors to pull their money out.
Another institution, Signature Bank, was also shut down by regulators in the ensuing panic. Other regional bank stocks plummeted on Monday morning, even as the Federal Deposit Insurance Corporation (FDIC) stepped in to reassure depositors that their funds were safe.
What crypto experts are saying
Crypto advocates have said the highly publicized failure of two mainstream banks highlights the importance of the decentralized structure of bitcoin and other cryptocurrencies, which are built on a blockchain and therefore not controlled by one entity.
- "Bitcoin was created in the wake of the 2008 financial crisis to solve endemic issues with traditional finance similar to the ones we’re seeing now,” Alex Adelman, CEO and co-founder of bitcoin rewards platform Lolli, said in email commentary shared with Money.
- Cathie Wood, founder of Ark Investment Management, said her crypto team is “not surprised” that bitcoin and other cryptocurrencies are gaining value this week: “Their blockchains are decentralized, transparent and auditable. Banks are not and, in the last few days, have become less so,” she tweeted on Monday.
Advice from Money
After reaching record highs in the fall of 2021, crypto prices have fallen sharply over the past 15 months and remain depressed. The post-SVB rally is a bright spot for investors, but be careful.
Crypto is a very volatile asset, and prices can fall just as quickly as they rise. Financial experts generally don’t recommend that investors keep more than a tiny portion of their portfolios in cryptocurrency — and nothing more than they can afford to lose entirely.
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