SVB Collapse Reveals a Surprise for Bitcoin

Cryptocurrency prices have gained almost 27% since the collapse of Silicon Valley Bank.

The banking crisis caused by the collapse of Silicon Valley Bank continues to worry investors. 

Since regulators shut down the California bank, which primarily catered to startups and venture capital firms, all eyes have turned to other regional banks.

Then there's the crisis across the Atlantic Ocean: Investor mistrust revolves around Credit Suisse, the Swiss bank weakened by a series of scandals over the past three years. 

In Europe, the Swiss National Bank, the central bank, granted a loan of 50 billion Swiss francs (nearly $54 billion) to Credit Suisse. While these measures have been able to appease investors, fears remain. Investors shun most regional banks.

The authorities had to intervene to avoid a general panic. In the U.S., the FDIC, the Federal Reserve and the Treasury Department have unveiled an emergency plan guaranteeing the deposits of all customers but those who were uninsured (accounts containing more than $250,000). 

The Fed in its capacity of last resort has also created a facility to grant loans to commercial banks facing liquidity problems if needed. 

'The Bank of Bitcoin Remains Open'

However, this crisis has produced a big winner: cryptocurrencies, and more specifically bitcoin. 

Normally in times of uncertainty, digital currencies are one of the assets investors shy away from because they are by nature very risky. 

But since the failure of SVB on March 10, the opposite has happened. Bitcoin, the most popular cryptocurrency, is seeing a strong rise. 

On the day of SVB's collapse, bitcoin prices were around $19,726.50, according to data firm CoinGecko. They are currently at $24,965.63, up 27% in less than a week. They had touched $25,959.19 on March 14, a gain of almost a third (32%).

"The Bank of #Bitcoin remains open," Michael Saylor, a bitcoin evangelist, said on March 12.

Since then, the billionaire has not stopped sending tweets mocking the traditional financial system and praising the decentralized side of bitcoin and cryptocurrencies in general. 

Decentralization means that cryptocurrency investors have the choice to keep their funds in the form of tokens on centralized platforms or to keep them themselves via private wallets. In that second case -- the one most advocated by digital currency evangelists -- it's impossible for exchanges to touch that money.

"#Bitcoin is a bank that can't lend out, invest, gamble, dilute, debase, freeze, or seize your assets," Saylor said on March 13. "It works all the time, everywhere in the world, and is unstoppable."

He also took a jab at Credit Suisse.

"#Bitcoin is better than a Swiss Bank in your Pocket," Saylor quipped.

MicroStrategy,  (MSTR) - Get Free Report Saylor's company, is the major company with the most exposure to bitcoin. The company holds 132,500 bitcoins valued at just under $3.3 billion on its balance sheet, according to Bitcoin Treasuries. This portfolio is down about $700 million.

Response to Bank Crisis

Bitcoin is leading the rest of the cryptocurrency market in its rebound. The prices of ether, the second cryptocurrency by market value, are up 21% to $1,667.57 since the setbacks of SVB.

The performance of the cryptocurrency market is all the more surprising since Silvergate and Signature Bank in New York, two banks that offered services to crypto players, also collapsed. 

To buy cryptocurrency in the U.S., consumers and investors must transfer funds from a bank account to the platforms. And to cash out in fiat currency, investors selling their crypto must have a bank account. 

The problem is even more important for institutional investors because traditional banks are often reluctant to do business with the crypto industry because of the risks. As a result, the failure of Silvergate and First Signature in New York is not good news for the crypto space.

But crypto players say that bitcoin was created specifically to respond to distrust of the traditional banking sector. Bitcoin was indeed created in January 2009 in response to the 2008 financial crisis caused by subprime mortgages. The cryptocurrency responded, enthusiasts say, to the massive bailouts of banks despite their mistakes with taxpayers' money.

"Bitcoin has risen in response to the government's actions because the Fed is likely to slow or stop the interest rate increases now that they're putting banks at risk," said Ruadhan O, a cryptocurrency investor. "Both US Treasury bonds and banks are typically considered ultra-safe investments, especially in comparison to cryptocurrencies. 

"Despite bitcoin's volatility, the current banking panic may cause investors to reevaluate its potential as a safe-haven asset."