Crypto markets cooled after Bitcoin wrestled its highest jump in nearly a month on Monday, following moves by US authorities to stem the spread of concern about the health of the nation’s financial system.
The largest crypto asset by market value sat on a 24-hour increase of around 4% to $22 362 as of 9:06 a.m. in New York, after gaining as much as 6% earlier — its biggest increase since February 15. Over the weekend US agencies pledged to fully protect all depositors’ money following the collapse of Silicon Valley Bank on Friday, while the bank’s UK branch was sold to HSBC Holdings Plc for £1 on Monday morning.
Meanwhile Signature Bank — one of the most prominent US crypto-friendly banks left after Silvergate Capital Corp. shut down earlier this month — was closed by New York state financial regulators on Sunday with access to funds for depositors. The spate of bank closures had unnerved crypto markets, with several major crypto companies including Circle Internet Financial, Coinbase Global Inc. and Paxos Inc. exposed.
“The Federal Reserve’s rescue plan has bolstered market confidence and allayed concerns about the potential collapse of additional players, particularly given that Signature is a major bank within the crypto industry,” said Rachel Lin, co-founder of SynFutures, a decentralized derivatives trading platform.
Larger gains among smaller cryptoassets known as altcoins were also pared, with Cardano’s earlier 8.5% increase withdrawing to 3.3% and Tron edging down to a 7% rise. Bitcoin had been recovering from its worst week since November, where an equity selloff, jitters in the banking sector and an escalating US regulatory crackdown on crypto combined to hurt investor sentiment.
SVB’s failure triggered a knock-on effect in crypto’s crucial market of stablecoins after Circle, one of the largest operators of USDC, revealed it had $3.3 billion of reserves backing the token stored with the bank. Stablecoins are cryptocurrencies that aim to keep a one-to-one value with a less volatile asset like the US dollar, and are an integral safe haven for crypto investors seeking to maintain value without exiting into traditional currencies.
The news of SVB’s shutdown caused Circle’s USDC to slip far below its dollar peg — an event that’s the stablecoin equivalent of a money market fund breaking the buck — and sent a shock through the broader sector. By Monday morning, USDC had recovered to trade at around 99 cents.
The token’s depeg triggered a huge surge in volumes on decentralized exchanges on Saturday, thanks to its outsized prominence as a trading pair on such exchanges. Uniswap and Curve, the two leading decentralized exchanges, recorded their highest ever daily trading volume that day, according to data from DeFiLlama, with about $13.3 billion and $8 billion in volume respectively.
Curve’s 3pool, a liquidity platform that allows traders to swap three of the market’s top stablecoins like for like, accounted for $4.8 billion in trade volumes on Saturday. Users queued to swap USDC and DAI, a stablecoin backed by cryptoassets rather than actual dollars, for Tether’s USDT, the largest stablecoin by market circulation, after both USDC and DAI lost their dollar pegs over the weekend.
The total value locked in decentralized finance protocols has dropped nearly 10% in just a day to $38.6 billion, according to data from tracker DeFi Llama.
At the same time the dominance of Tether, the only stablecoin that’s benefited from the ructions in crypto markets, has risen further as traders seek safety in the least-regulated token. Tether accounted for $72.3 billion of the $135 billion stablecoin universe as investors yanked $3 billion from rival USDC since Friday, according to crypto price data site CoinGecko.
“When traders are unsure about crypto prices, they flee to stables and bank deposits,” crypto trading firm Cumberland noted in a market update. “When they are unsure about stables and bank deposits? It’s crypto’s time to shine.”
© 2023 Bloomberg
