Bitcoin and Coinbase Rally Amidst Banking Crisis: What You Need to Know
Bitcoin and Coinbase experienced significant gains earlier this week as the U.S. government stepped in to prevent a banking crisis from spreading throughout the economy. According to Coinmarketcap, Bitcoin jumped 15.6% in recent days, while Coinbase’s shares popped 10.7%, closing at $59.17.
The news of the banking crisis first broke on Sunday, with the closure of Signature Bank (SBNY) by federal and New York state regulators. The bank, which connected crypto firms to the traditional finance system, held $240 million in Coinbase corporate cash. Coinbase, however, has said that it expects to recover these funds.
In addition to Coinbase, the issuer of the stablecoin USD Coin, Circle Internet Financial, also experienced a rebound. Silicon Valley Bank, which held $3.3 billion in reserves for USD Coin, was protected by the U.S. government, making the $3.3 billion fully available.
Stablecoins, like USD Coin, are often used by traders to get in or out of their positions in more volatile cryptocurrencies. They are also utilized by companies to store their capital and profits. As such, the rebound in USD Coin valuation is critical to Coinbase, accounting for around 80% of its interest income and 23% of total revenue in Q4, according to Mizuho Securities.
While the depositors in Silicon Valley Bank and Signature Bank will be protected, shareholders and certain unsecured debtholders will not be bailed out, according to the U.S. Treasury and FDIC. The collapse of crypto-friendly Silvergate Capital had already been putting pressure on Signature Bank before the crisis at Silicon Valley Bank emerged.
It is worth noting that the information on Coinbase’s revenue and interest income from USD Coin came from Mizuho Securities. Additionally, the article discusses the potential impact of this banking crisis on Bitcoin’s price in the long run, and how traders will continue to rely on stablecoins like USD Coin to navigate the cryptocurrency market.