Turmoil in traditional finance spilled over into Bitcoin and crypto markets, forcing federal regulators to step in.
Crypto investors should know by now that it doesn’t take much to topple a distressed 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. That crucial detail prompted federal regulators in the United States to step up and backstop SVB depositors before a bank run could ensue. Although government protections weren’t enough to stem a massive drop in bank stocks once markets reopened on Monday, Bitcoin (BTC) and the broader crypto market soared. Did FDIC bail out Bitcoin? Only time will tell.
The SVB fiasco triggered a short but intense period of fear and trepidation in crypto markets as Circle’s USD Coin (USDC) depegged. The only thing Circle did wrong was holding a portion of its deposits at SVB when it collapsed.
This week’s Crypto Biz tries to make sense of SVB’s failure and how it affected 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 FDIC as the receiver to protect insured deposits. The news triggered a fire sale in crypto and financial markets as SVB was a top-20 U.S. bank by total assets. So, what compelled regulators to close the bank? Earlier in the week, SVB released its mid-quarter financial update, which disclosed a $1.8 billion loss tied to securities sales and the need to raise $2.25 billion to shore up operations. SVB was a trusted partner of many crypto-focused venture capital firms, but its demise was ultimately tied to duration risk, not crypto industry exposure. Washington put out the SVB fire quickly by announcing that all depositors, and not just accounts worth up to $250,000, would be protected. President Joe Biden later confirmed that shoring up depositors would not cost the taxpayer anything.
Customers lining up outside of Silicon Valley Bank at its Menlo Park, CA branch. pic.twitter.com/SDNrSUC1C0
— Cointelegraph (@Cointelegraph) March 10, 2023
Circle ‘able to access’ $3.3B of USDC reserves at Silicon Valley Bank, CEO says
One of the companies caught in the crosshairs of SVB was stablecoin issuer Circle, which had $3.3 billion in reserves tied up at the failed bank. USDC lost stablecoin market share — and its peg to the U.S. dollar — once SVB collapsed because it wasn’t 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 par with the dollar, with Circle confirming it could access reserves held at SVB. Circle lost significant market share over the past week due to ongoing USDC redemptions. USDC’s market cap currently stands at $38.4 billion, less than half of rival Tether, whose USDT is valued at nearly $73.6 billion.
Breaking: Signature Bank closed by New York regulators, citing ‘systemic risk’
SVB wasn’t the only crypto-friendly bank collapse this week. On March 12, the Manhattan-based Signature Bank was officially shuttered by the New York Department of Financial Services, allegedly to protect the U.S. economy and strengthen the public’s confidence in the banking system. “The actions that we took today were designed to limit the consequences of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects,” a Treasury official reportedly said. Like SVB depositors, all accountholders at Signature will be made whole without affecting taxpayers. Signature Bank had nearly $89 billion in deposits as of Dec. 31, 2022.
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
South Korea launches ‘Metaverse Fund’ to expedite 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) toward metaverse development as part of a bigger 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 still-evolving sector. The metaverse arms race continues. As Cointelegraph reported earlier this month, Mark Zuckerberg’s Meta won court approval to continue its metaverse acquisition plans.
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