The market is now steadily recovering from the panic that erupted in response to the collapse of major banks. There was ample cause for it, as assets held by Silicon Valley Bank were the equivalent of $209 billion. This made the collapse of SVB the second largest in US banking history.

As a result, the government decided to intervene in what was happening and guaranteed the availability of deposits to bank users. Consequently, customers got their money and the economy continued to function normally.

The cryptocurrency market reacted to the situation. Yesterday, coins made serious gains: Bitcoin, for example, jumped above $26,000. Today, the market has cooled down a bit.

As a result, many digital asset fans and analysts in general have started talking about the prospects of a new bullpen for cryptocurrencies. Economic prerequisites for this aside, the events of the last week have shown the unreliability of the banking system, which in theory could rob ordinary people of their money. In this context, dealing with cryptocurrencies no longer seems like such a dangerous idea.

What will happen to cryptocurrencies

Economists speculate that the US Federal Reserve will be forced to soften its approach to base lending rate dynamics in light of what is happening. In other words, the Fed will have to support the economy at a difficult time so that the collapse of the big banks does not lead to an even greater collapse of the markets.


As a reminder, the benchmark lending rate determines the cost of loans that commercial banks take from the central bank. Over the past year the rate has been rising substantially around the world, slowing economic growth and needed to fight inflation.

However, the rate increase has also created problems for Silicon Valley Bank. In short, the bank representatives invested customers' money in government bonds for a long period. As rates went up, similar bonds for the same period started yielding more interest, and the value of the "old" bonds of SVB collapsed. In addition, the bank's clients have actively withdrawn money from their accounts, which has led to liquidity problems. All this forced the bank to sell the bonds before maturity, at a loss, and lose money. This is why the financial institution went bankrupt.


According to Decrypt’s sources, the Fed began an aggressive campaign to fight inflation a year ago by regularly raising the interest rate from near zero. Now that it is between 4.50 and 4.75 percent and the banking sector is bursting at the seams, the chances of another rate hike by Fed officials have significantly diminished.

According to FedWatch, the probability of a 0.5 per cent rate hike next week has fallen from 40 to 0 per cent. At the same time the probability of a regular rate hike has risen from 0 to 34 per cent.

Earlier, Fed Chairman Jerome Powell has repeatedly stated that the rate will remain high until the government achieves its inflation reduction targets. According to ING Bank chief economist James Knightley, the incident with the banks completely changes the course of action. Here is his quote on what is happening.

If a situation arises that requires it, the Fed will very, very quickly change its mind. Now there is every reason to believe that the rate has already been at its maximum.

Remember, the next meeting of the US Federal Open Market Committee (FOMC) will be held on March 22 - and it will decide on the actions regarding the base lending rate.

If the Fed doesn’t raise rates next week, a huge influx of funds into high-risk assets, including crypto, can be expected as capital holders expect this particular class of investment to grow. Typically, however, risky investments fall in value as the economic situation worsens and rise as it improves.

Knightley says that what happened to SVB is clear evidence that the US Federal Reserve “went too far”, and attempts to reduce inflation were too harsh. James Butterfill, investment strategist at CoinShares, agreed with this statement. Here’s his quote.

When rates are raised so aggressively, sooner or later something will “break” in the economy. We are now seeing the first signs of this.

Until recently the likelihood of a rate hike was based on the forthcoming Consumer Price Index (CPI) data for February. That figure was released yesterday – and it was up 6 per cent on the year, which was in line with analysts’ forecasts. Ameriprise Financial Services senior economist Russell Price also expected this scenario. Here’s his rejoinder.

To some extent, the Silicon ValleyBank collapse has pushed the Consumer Price Index report to the back burner a bit. But if we get data that shows that inflation has become much more “stubborn” and won’t slow down as it has in the past, then that could complicate things.

By the end of this week the volatility in the crypto market will still be high, and for sure the price of Bitcoin will bounce back during the correction. Next week will be even more interesting as the news from the upcoming FOMC meeting, coupled with a new speech from Fed Chairman Jerome Powell, may decide the fate of the markets for months to come.


We believe that such a precipitous collapse of the big banks in the USA will really make people question the soundness of the traditional financial system. Well that's a fitting reason to link to Bitcoin at the very least. The latter has a fixed inflation rate and a limited maximum supply, which makes BTC an attractive asset in the face of massive money printing. In addition, no one can influence what happens to the cryptocurrency, so you can't count on Bitcoin being "insolvent" by analogy with Silicon Valley Bank, for sure.


Don’t miss news and other interesting posts in our cryptochat. There’s dreaming of a new bullrun coming as soon as possible.