- The US government targets to reinstate confidence in the banking system
- The Federal Reserve has been forced to create a Bank Term Funding Program. This will allow banks, savings associations or credit unions to borrow from the program
- CNN reported that banks in the country are sitting on unrealized losses of US$620 billion
This past weekend has been quite eventful in the cryptocurrency market. Three United States banks ( SVB, Signature and Silvergate) that act as collateral for major cryptocurrency markets have collapsed. The crypto market also saw the de-pegging of the second largest stablecoin, USDC, which restored the 1:1 coin-dollar ratio after a Silicon Valley bailout.
During these heavy waves hitting the crypto market, bitcoin has managed to pump from US$19,826 on March 10 to over US$24,500 by the time the money market was closing on Monday. Momentarily bitcoin hit US$50,000 on Binance.
How the bull market started
The bull market has been ignited by the effects of the Silicon Valley Bank collapse. The hiking of interest rates in the US had sent the country into a panic mode in speculation that they might still go up. This led to increased withdrawal rates from SVB. As visualized by the USDC de-pegging, the bank could not pay out some depositors. However, with news that the bank would be bailed out, USDC has slowly regained its dollar pegging.
However, the Silicon Valley Bank collapse has opened the eyes of the government to the disaster staring at their eyes if there is no bailout for SVB. Essentially, over 40,000 SVB depositors are small businesses. This means that the closure of the bank will affect all these enterprises, increasing the rate of unemployment in the country exponentially. The government is looking at the potential of the death of thousands of US inventions which will decrease productivity by a margin.
Here is a list of the top 15 companies with deposits in Silicon Valley Bank.
- Circle – US$3.3 billion
- Bill.com – US$670 million
- Roku – US$487 million
- BlockFi – US$227 million
- Roblox – US$150 million
- Sunrun – US$80 million
- Ginkgo Bio – US$74 million
- iRythm – US$55 million
- Rocket Lab – US$38 million
- Sangamo Thera – US$34 million
- Lending Club – US$21 million
- Huuuge Inc – US$24 million
- Payoneer – US$20 million
- Ambarella – US$17 million
- Protagonist Thera – US$13 million
The status of the banking system
The situation at SVB is a benchmark of the status of many banks in the country. If all the depositors went to the banks to withdraw their money, most of them would find themselves in the same situation.
The bonds held by banks are becoming less and less valuable with the increasing interest rates. Shortly put, the value of banks is reducing, and they can’t service massive withdrawals. CNN reported that banks in the country are sitting on unrealized losses of US$620 billion.
With this realization, the Federal Reserve has created a Bank Term Funding Program. The program will allow banks, savings associations or credit unions to borrow. The FED targets to ensure that money flows in the economy, cushioning a possible cash shortage. They are also buying back the bonds that banks hold at the price they would retail had they reached maturity.
The US government targets to reinstate confidence in the banking systems which has drastically torn down with the collapse of the two banks. The collapse of banks would affect the government’s control of the financial system, leading to more decentralization which is unfriendly to governance.
The indirect bailout is what has fueled the crypto market bull run.
What has been causing the crypto winter
The Federal Reserve has continuously made it more difficult to invest due to the hied interest rates. If money cannot find its way to the market, then automatically, crypto shares a slice in bearing the shock.
However, treasury secretary Janet Yellen released a statement saying that DEPOSITORS DO NOT HAVE TO WORRY ABOUT LOSING ACCESS TO THEIR MONEY.
It appears that the United States is looking at printing money to try and avert the possible fiat shortage in the country. The Federal Reserve cannot increase interest rates anymore as that would be unbearable for the banks.
Another reason for the BTC and ETH pump is that, with USDC, many traders are realizing that stablecoins are not safe and they are subject to some sort of centralization.