Crypto-versed: crypto assets whipsaw on US bank failures

Market participants have become gripped by fear in the past week, as signs of systemic risk in the US banking system emerged. Headlines have been captured by the fall of Silicon Valley Bank (SVB), owing to the stress placed upon it by a rapidly shifting interest rate environment, combined with catastrophic failures in its risk management.

SVB was the sixteenth largest bank in the US and a major banking partner of the US start-up community, and now boasts the ignominious title of the second largest bank failure in American history. Policymakers have swept in due insure the bank’s depositors, while also providing a short-term lending facility for other institutions that may become distressed.

Bitcoin historical volatility chart

The problems in mainstream banking were arguably portended by the fall of a major institution in the crypto world. As we covered last week, signs of stress at Silvergate Capital - a lender and exchange operator in the crypto world – had been building for several months.

The bank had been caught in the vortex of the FTX collapse, which it counted as a major debtor, with the subsequent loss degrading the bank’s capital position and sparking a steady withdrawal of depositor funds.

Last week, Silvergate made public that it would be closing its Silvergate Exchange Network, before announcing that it would also wind down its banking operations and begin the process of liquidation.

The fears of crypto contagion were compounded by the sudden and unexpected failure of Signature Bank. While not strictly a crypto bank, the institution's pivot toward the crypto industry in 2018 meant that as much as 30% of its deposits were cryptocurrencies.

Amidst the nervousness brought about by Silvergate Capital and the Silicon Valley Bank failures, a bank run began at Signature Bank, where more than US $10 billion of deposits were withdrawn in a matter of days.

While the story had largely gone unnoticed by market participants and financial media, the event came to light with the measures to back-stop SVB depositors, when the US revealed New York authorities had closed the bank.

Three cryptos to watch

Cryptocurrencies have whipsawed in recent days as the crisis unfolded. While initially tumbling, the measures enacted by policymakers, along with some softer-than-expected US economic data that has led to pricing out of some Fed rate hikes, has stoked a recovery in prices.

• Bitcoin

The price of Bitcoin surged as the crisis in US banks appears contained. Buyers defended the 200-day MA, while sellers continue to emerge above US $25,000. A daily close above that level may see the price consolidate and the next level of resistance around US $28,500 open up. Support can also be found at US $20,000.

Bitcoin daily chart

• Ether

Ether prices have also surged amidst the relief rally in crypto. Price broke resistance at US $1670 and challenged resistance around US $1790 before pulling back. Technical support looks to be around the 200-day MA, along with US $1460.

Ether daily chart

• Litecoin

Litecoin has pushed out of technically oversold territory but momentum remains skewed to the downside. Support/resistance looks to be just above US $80 per share, 20-day MA level traders have faded in the past and dips have been bought below the 200-day MA.

Litecoin daily chart