A tumultuous few days for banks, including the failures of Silicon Valley Bank (SVB), Silvergate Capital and Signature Bank, prompted US President Joe Biden to reassure the world that the “banking system is safe” even as a number of banking stocks tanked Monday.
Meanwhile, in crypto land, popular stablecoin USDC finally regained its peg to the US Dollar early Monday after a surprising announcement late Sunday from the Federal Deposit Insurance Corporation (FDIC) that it would ensure all SVB depositors will have access to their funds.
This was good news for USDC issued by Boston-based Circle, which backed the digital currency with over $40 billion, nearly ten percent of which is held at SVB. Last week it became clear that the bank, which counts a number of leading VCs and tech companies among its depositors, was in trouble and before the week was out the Silicon Valley institution had failed.
With a significant fraction of its assets suddenly in limbo, USDC lost its peg to the dollar and dropped below 90 cents for a period. The currency slowly recovered over the weekend and then re-pegged Monday following the FDIC’s announcement and Biden’s address.
The response to the turmoil from international stock and crypto markets has been curious to watch.
Indications that anxiety was still the dominant emotion for investors was first apparent when bank stocks dipped as European markets opened Monday. The slide continued when exchanges in New York opened and regional bank stocks dropped.
First Republic Bank saw its shares slip by 70 percent before recovering slightly. Larger banks like Wells Fargo and Bank of America are weathering the storm, losing just a few percentage points.
At the same time, crypto prices are seeing a big boost, with Bitcoin passing $24,000, up almost 20 percent over the past day. Bitcoin-related token Stacks is up over 40 percent during the same period.
The price spike could be explained by an exodus of investment from the banking sector, but seems more likely a result of squeamish stablecoin holders swapping the apparently less-than-stable tokens for blue chip crypto assets.