Bitcoin Surges as Bank Client Rescue Eases Contagion Fears, Fuels Hopes for Fed Dovishness; Binance's $1B Conversion Helps, Too

Bitcoin surged above $24,000 for the first time in over two weeks as investors exhaled once U.S. regulators stepped in to back deposits at Silicon Valley Bank (SVB) and Signature Bank (SBNY), and grew hopeful the near-meltdown of the banking sector would prompt the Federal Reserve to ratchet back its monetary hawkishness.

The largest cryptocurrency by market capitalization traded as high as $24,574 Monday midday, according to CoinDesk data – before recently retreating slightly above the $24,200 mark, still up over 10% over the past 24 hours. BTC dipped below $20,000 last Friday (UTC) as SVB collapsed.

But a number of analysts said markets were buoyed by the regulators’ decisions late Sunday to make whole depositors at crypto-friendly Signature Bank and Silicon Valley Bank. Earlier in the day, New York state’s top regulatory agency shuttered Signature, saying it had “taken possession of the bank to protect depositors.”

“The [federal] bailout for depositors has alleviated some of the fears surrounding contagion risk, which resulted in a short squeeze,” Martin Leinweber, digital assets product specialist at MarketVector Indexes, told CoinDesk.

Monday’s surge caught traders who bet on prices falling off-guard, forcing them to liquidate some $81 million of BTC short positions over the course of the day. Leinweber noted that “the majority of these (positions were) placed on Friday when concerns were heightened.” These types of short squeezes tend to push prices higher.

USDC depegging chaos

In an email to CoinDesk, Joe DiPasquale, CEO of crypto asset manager BitBull Capital, said “an outflow” from Circle’s USDC stablecoin to bitcoin and Binance’s decision to exchange stablecoins from its recovery fund to bitcoin and ether also led to price increases.

On Sunday, Binance said it would convert $1 billion worth of Binance USD (BUSD) to bitcoin (BTC), ether (ETH), BNB coin (BNB) and other tokens to support the market. The move likely contributed to buying pressure, as CoinDesk reported.

Meanwhile, markets may have been encouraged by what some analysts believe will be a more dovish tone from the Federal Reserve, which has been stung by criticism in recent months that it was raising interest rates too aggressively. On Sunday, Goldman Sachs analysts forecast no rate hike at the Federal Open Market Committee's March 22 meeting after the recent banking stresses, according to a report.

Yet, MarketVector’s Leinweber said that despite temporary bailout relief, sentiment remains “apprehensive and cautious.” He sees concerns raised over “possible further banking fallouts” and businesses that “are industry critical due to the inability to efficiently manage cash flow.”

“Bears have voiced their major points of concern, including that none of the policies address the fundamental duration mismatch problem that many of these financial institutions have,” he said. He added: “The ability to borrow secured from the Fed at par (rather than at market prices) only helps in a distress situation and does not address the mismatch in assets/liabilities and over-reliance on zero-interest large deposits.”

In an email to CoinDesk, Joshua Frank, co-founder and CEO ofThe Tie, a provider of information services for digital assets, struck a cautiously optimistic note.

“The loss of Silvergate, SVB and Signature is devastating for U.S.-based crypto companies,” Frank wrote. “That said, the crypto market has at least temporarily responded to the bailouts well. In light of the uncertainty surrounding banking in the U.S., the narrative of bitcoin as a hedge and safe haven has gained steam.”

Frank added: “While short-term positive, there are still many long-term macro factors to be wary of. U.S. regulators are clearly trying to de-bank crypto, the macro environment does not look great, and major financial institutions went under. If crypto - and in particular bitcoin - is going to continue to recover, we will likely need to see widespread support for this emerging narrative similar to what we saw in 2020/2021 with the bitcoin halving/inflation hedge narrative.”

Elsewhere in markets

Ether (ETH), the second-largest cryptocurrency, recently rose by over 7% Monday afternoon to change hands around $1,675. Layer 2 protocol Optimism's native OP token surged 21% Monday. LDO, the governance token of the decentralized autonomous organization (DAO) behind liquid staking system Lido, gained 15%.

The CoinDesk Market Index, which measures the overall crypto market performance, was up over 10% for the day.

Equity markets turned mixed Monday afternoon: The S&P 500, Wall Street's benchmark equity index, closed down 0.1%. The Dow Jones Industrial Average (DJIA) slid 0.2%, while the tech-heavy Nasdaq Composite was up 0.4%.

Among crypto-related stocks, Marathon Digital Holding (MARA) closed up 25% after it said it still has access to $142 million at Signature Bank.

Investors will be eyeing Tuesday’s release of February’s consumer price index data.