SVB collapses, USDC depegs, Bitcoin still up
Crypto investors should know by now that it doesn’t take much to topple a struggling multi-billion dollar firm. On March 10, California regulators officially shut down Silicon Valley Bank (SVB) 48 hours after the company disclosed it was in financial distress. As Cointelegraph reported at the time, SVB is the first Federal Deposit Insurance Corporation (FDIC)-insured bank to fail in 2023. This crucial detail prompted US federal regulators to step up and stop SVB depositors before a bank run could occur. While government protections weren’t enough to stem a massive slide in bank stocks when markets reopened on Monday, Bitcoin (BTC) and the broader crypto market rallied. Did the FDIC bail out Bitcoin? Only time will tell.
The SVB fiasco triggered a brief but intense period of fear and apprehension in the crypto markets as Circle’s USD coin (USDC) was decoupled. The only thing Circle did wrong was to keep part of its deposits with SVB when it collapsed.
This week’s Crypto Biz tries to understand SVB’s failure and how it affected the crypto markets.
Silicon Valley Bank shut down by California regulator
On March 10, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank and appointed the FDIC as receiver to protect insured deposits. The news sparked a fire sale in the crypto and financial markets as SVB was a top-20 US bank by total assets. So, what forced regulators to close the bank? Earlier this week, SVB released its mid-quarter financial update, which revealed a $1.8 billion loss related to securities sales and the need to raise $2.25 billion to shore up operations. SVB was a trusted partner to many crypto-focused venture capital firms, but their demise was ultimately tied to duration risk, not crypto industry exposure. Washington quickly doused the SVB fire by announcing that all depositors, and not just accounts worth up to $250,000, would be protected. President Joe Biden later confirmed that supporting depositors would not cost taxpayers anything.
Circle ‘able to access’ $3.3 billion USDC reserves at Silicon Valley Bank, CEO says
One of the companies caught in SVB’s crosshairs was stablecoin issuer Circle, which had $3.3 billion in reserves tied up in the failed bank. USDC lost stablecoin market share – and its link to the US dollar – when SVB collapsed because it was not clear if and when Circle could access its funds. At its lowest point, USDC fell to around $0.87. The stablecoin has since returned to level with the dollar, and Circle confirms that it can access reserves held at SVB. Circle lost significant market share this past week due to ongoing USDC redemptions. USDC’s market cap is currently $38.4 billion, less than half that of rival Tether, whose USDT is valued at nearly $73.6 billion.
Breaking: Signature Bank shut down by New York regulators, citing ‘systemic risk’
SVB wasn’t the only crypto-friendly bank collapse this week. On March 12, Manhattan-based Signature Bank was officially shut down by the New York Department of Financial Services, ostensibly to protect the US economy and strengthen public confidence in the banking system. “The actions we took today were designed to limit the impact of investor outflows from Silicon Valley and from Signature and to reduce any spillover effects,” a Treasury official said. Like SVB depositors, all account holders with Signature will be made whole without affecting taxpayers. Signature Bank had nearly $89 billion in deposits as of December 31, 2022.
South Korea launches ‘Metaverse Fund’ to accelerate domestic initiatives
“Metaverse” is still a vague and underdeveloped concept, but South Korea is taking it very seriously. Seoul’s Ministry of Science and ICT announced it would allocate 24 billion won ($18.1 million) to metaverse’s development as part of a larger pot worth 40 billion won ($30.2 million). The newly launched Metaverse Fund is said to support mergers and acquisitions of various metaverse-related companies – a move that could give the country an upper hand in the ever-evolving sector. The metaverse arms race continues. As Cointelegraph reported earlier this month, Mark Zuckerberg’s Meta won court approval to proceed with his metaverse acquisition plans.
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