Work

Silicon Valley Bank bankruptcy and Stablecoins stability

Year: 2023

Type: article

Abstract: To what extent does the collapse of a commercial bank spread contagion across cryptocurrency markets? How do markets behave around bankruptcy if digital assets remain stuck within the bank and cannot be withdrawn? We use a BEKK model to examine contagion effects across major digital assets during the Silicon Valley Bank (SVB) collapse period in early March 2023. We find evidence of contagion across major stablecoins and Bitcoin. We also examine the price action when nearly all withdrawals at SVB were prohibited. We find substantial abnormal movements in stablecoin cumulative returns and volumes, indicating a “flight to safety” from less to more authoritative and trusted stablecoins. The implications for practitioners and policymakers are discussed.

Source: International Review of Financial Analysis

DOI: 10.1016/j.irfa.2023.103001

Authors: Luca Galati, Francesco Capalbo

Institutions: University of Molise, University of Wollongong, RoZetta Institute

Language: English

Topic: Financial Risk and Volatility Modeling

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,150

Funders: Capital Markets CRC Limited, RoZetta