The work examines the contagion effects across major digital assets during the Silicon Valley Bank collapse in early March 2023. It finds evidence of contagion among major stablecoins and Bitcoin, along with significant abnormal movements in stablecoin cumulative returns and volumes.
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| Research question | To what extent does the collapse of a commercial bank spread contagion across cryptocurrency markets? |
| Methodology | BEKK model |
| Data and sample | Silicon Valley Bank collapse period in early March 2023 |
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 How do markets behave around bankruptcy if digital assets remain stuck within the bank and cannot be withdrawn?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.
Luca Galati, Francesco Capalbo (2023). Silicon Valley Bank bankruptcy and Stablecoins stability International Review of Financial Analysis.
@article{galati2023siliconvalleybankbankruptcy,
title = {Silicon Valley Bank bankruptcy and Stablecoins stability},
author = {Luca Galati and Francesco Capalbo},
year = {2023},
institution = {Elsevier BV},
journal = {International Review of Financial Analysis},
doi = {10.1016/j.irfa.2023.103001},
url = {https://doi.org/10.1016/j.irfa.2023.103001},
note = {Indexed by Stablecoin Beat},
}