Prices, Volume Spike on Mix of Regulators' Backstops and Lower Rate Expectations

Crypto assets reversed course on Monday from their recent down trend as Federal Reserve comments appeared to allay investor fears about the impact of Silicon Valley Bank’s collapse on the banking sector and economy.

Bitcoin, ether and other major cryptos all spiked on Monday, the former two assets by well into the double digits, as conditions late Sunday and early Monday improved. The turnaround followed just a couple of days after markets went into a tailspin.

The collapse of SVB, once holding close to $200 billion in investor deposits, had sent markets roiling on Friday because the bank’s depositor base extends through much of the technology and crypto ecosystem. (SVB was CoinDesk's bank.) BTC’s price fell below $20,000 on Friday (UTC) on heavy volume as fears of contagion rippled through on-risk, asset markets.

The announcement by the U.S. Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) that depositors would have full access to their deposits by Monday morning renewed markets’ confidence and boosted BTC and ETH prices by as much as 15% and 10%, respectively.

Bradley Duke, co-CEO at ETC Group, said the announcement had reassured “both traditional and crypto markets.”

The intraday price move would have represented the largest one-day moves for BTC and ETH since February 2021 and November 2022, respectively.

The Federal Reserve also announced plans to make additional funding available to all eligible depository institutions, and is “prepared to address any liquidity issues that may arise”.

The Fed statement is a crucial one, as it implies that the pain incurred by the collapse of SVB will be ring-fenced to SVB only. Holders of deposits in excess of the traditional $250,000 limit were essentially ensured that they will be made whole.

USDC, which reportedly held funds at SVB, regained its peg with the U.S. dollar, after falling to as low as 94 cents on Friday.

BTC and ETH volume exploded on the day as both traded more that two times their average 20-day trading volume. The same spikes occurred in XRP, MATIC, ADA, DOT and SOL.

Meanwhile, in macroeconomic news, bond yields plunged as the fallout from the SVB collapse led investors to believe the Fed will slow or even pause rate hikes in response.

One day ago, markets were assigning a 40% chance that the U.S. central bank would boost interest rates by 50 basis points. Following the banking sector near-meltdown, they are assigning a 35% chance the Fed's Federal Open Market Committee will leave rates unchanged. The shift underscores concerns the Fed had spurred the crisis by overstepping in its efforts to tame inflation by limiting money supply.

Just in time to make macroeconomic conditions even more interesting will be Tuesday’s inflation report, which is likely to have an outsized impact on Tuesday trading. A favorable inflation figure will likely increase the chorus of calls for no rate hikes.

A less than optimal inflation figure will likely take markets on a ride, especially following today’s move higher.