What happened
The stock market is up after Silicon Valley Bank (a subsidiary of SVB Financial Group) depositors were saved from potential losses, and that bullishness has spilled over to cryptocurrencies. Values started to jump on Sunday afternoon and spiked even more on Monday in a wild reversal of weekend losses.
Altcoins are up across the board, but there were some notable moves leading the market. BNB (BNB 4.85%) jumped as much as 10% in the last 12 hours as of 3 p.m. ET, Cardano (ADA 1.73%) jumped 10.4% in the same period, and Filecoin (FIL 5.90%) moved 23.8% higher.
So what
The one move directly related to market news is BNB, which is up after Binance said it would convert $1 billion of a recovery fund to Bitcoin, Ethereum, and BNB. It's notable that it's buying BNB because that's Binance's token. In a sense, Binance is using some of the funds to help its own token, which in turn helps the company look stronger.
Cardano got some attention after founder Charles Hoskinson highlighted that banks have been riskier than holding crypto assets like stablecoins, which are backed by cash and government bonds. He wasn't necessarily pointing to cryptocurrencies themselves being safer than bank deposits, but rather than crypto has not posed a systemic risk in the same way that more traditional products like banks have. And he has a point.
As a utility token for data storage, Filecoin could benefit if this bank run results in more people using cryptocurrencies. And it's been one of the most volatile tokens of the last few months, so it's not surprising that a bounce in cryptocurrency values leads to Filecoin jumping today.
Now what
This could be a great opportunity for crypto and altcoins to prove their value as better financial instruments than traditional banks. But it's not clear that's what will happen over the next few weeks or months.
Cryptocurrencies have faced their own liquidity and stability challenges and haven't exactly proven to be more stable than traditional assets, or even a hedge against inflation. So, I see some potential positives for crypto in the wake of the two bank collapses in the past week, but no clear path to onboarding the next generation of users or developers.
I think today's move was driven more by volatility and a sharp drop in interest rates this morning than any real news in crypto. The drop in rates has driven investors back to "risk assets," or assets that are riskier but offer higher potential payoffs long term in what's known as a "risk on" trade. That's what we're seeing today.
The question for investors is whether the bounce will last. I am skeptical that the events of the last week will be bullish for crypto values long term. The industry is being squeezed by U.S. regulators, and if there isn't a clear alternative to the traditional banking system, the bounce could fade. But for today, investors are excited about crypto and altcoins once again.
