What happened
Shares of several Bitcoin (BTC 1.04%) mining stocks surged higher after the price of Bitcoin rebounded Monday.
That rebound was mostly thanks to the news Sunday that federal banking regulators would backstop deposits at SVB Financial (SIVB.Q -1.96%) and Signature Bank (SBNY) after both experienced runs on deposits and subsequently collapsed.
Shares of Riot Blockchain (RIOT 8.87%) traded close to 20% higher as of 3:23 p.m. ET Monday, while Marathon Digital (MARA 7.88%) and HUT 8 Mining (HUT) traded roughly 30% and 21% higher, respectively, and shares of Bitfarms (BITF) were up by about 17%.
So what
The start-up and tech-focused SVB Financial, which is the parent company of Silicon Valley Bank, was put into receivership by the Federal Deposit Insurance Corp. (FDIC) on Friday. While it wasn't a crypto bank per se, due to its position supporting the innovation economy and catering to venture capital and private equity firms, the bank certainly worked with plenty of crypto-related companies.
Image source: Getty Images.
Then Signature Bank, which did cater heavily to the crypto ecosystem, was suddenly closed by New York state regulators Sunday, and there was a big question about whether or not depositors from both banks were going to be made whole.
Cryptocurrency company Circle, which issues the U.S. dollar-backed stablecoin USD Coin (USDC 0.00%), said it had $3.3 billion of deposits with SVB, and that token lost its peg to the dollar over the weekend. It has since regained that peg.
After depositors were told they were going to be made whole -- which saved a lot of tech start-ups and early-stage companies that needed their funds to do things like meet payroll -- Bitcoin responded positively.
"Bitcoin is leading the market because there is a cohort of investors that recognize the fragility of central banking and the solutions BTC offers," said Sean Farrell of Fundstrat, according to CoinDesk. "Crypto is responding to the anticipated change in liquidity conditions as it should."
Not only did well-established banks just fail, but they were brought down by classic bank runs, although these bank runs happened largely online rather than at physical branches. SVB's depositors pulled a whopping $42 billion of deposits from the bank on March 9.
Now what
Because Riot, Marathon, Hut 8, and Bitfarms are all in the business of mining Bitcoin, they are always going to benefit when the token's price rises. Oftentimes, mining stocks trade with even more volatility, rising faster and falling harder than Bitcoin.
But I still have concerns about how Bitcoin will be impacted in the near term now that Silvergate Capital and Signature Bank have been closed. Both of these banks ran real-time payment networks that crypto exchanges and institutional traders used as fiat on-and-off ramps, and the institutions were seen as critical infrastructure for the crypto ecosystem.
Still, the price of Bitcoin has held up better than I would have thought, as has been the case since FTX collapsed. I do think Bitcoin is ultimately here to stay, so these miners may stick around as well, but I ultimately see Bitcoin as a better long-term investment.
