Crypto investors should know by now that it doesn’t take much to bring down a struggling multi-billion dollar company. On March 10, California regulators officially closed Silicon Valley Bank (SVB) 48 hours after the company revealed it was in financial difficulty. As Cointelegraph reported at the time, SVB is the first FDIC-insured bank to fail in 2023. That crucial detail prompted US federal regulators to step up and support SVB depositors before a bank run could take place. Although government protections were not enough to stop a massive slide in bank shares once markets reopened on Monday, Bitcoin (BTC) and the broader crypto market soared. Did the FDIC bail out Bitcoin? Only time will tell.
The SVB fiasco triggered a brief but intense period of fear and fear in the crypto markets as Circle’s USD coin (USDC) depegged. The only thing Circle did wrong was keep a portion of its deposits in SVB when it collapsed.
This week’s Crypto Biz tries to make sense of the SVB failure and how it affected the crypto markets.
Silicon Valley Bank closed by California regulator
On March 10, the California Department of Financial Protection and Innovation closed Silicon Valley Bank and appointed the FDIC as a receiver to protect insured deposits. The news triggered a sell-off in the crypto and financial markets, as SVB was one of the top 20 US banks by total assets. So what forced regulators to close the bank? Earlier in the week, SVB published its mid-quarter financial update, which revealed a $1.8bn loss linked to the sale of securities and the need to raise $2.25bn to prop up operations. SVB was a trusted partner to many crypto-focused venture capital firms, but its demise was ultimately related to duration risk, not exposure to the cryptocurrency industry. Washington quickly put out 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 propping up depositors would cost the taxpayer nothing.
Customers lining up outside Silicon Valley Bank’s Menlo Park, CA branch. pic.twitter.com/SDNrSUC1C0
— Cointelegraph (@Cointelegraph) March 10, 2023
Circle ‘able to access’ $3.3B of USDC reserves in Silicon Valley Bank, CEO says
One of the companies caught in SVB’s crosshairs was the issuer of the stablecoin Circle, which had $3.3 billion in reserves tied up in the failed bank. USDC lost stablecoin market share, and its peg to the US dollar, once SVB collapsed because it was unclear if and when Circle would be able to access its funds. At its lowest point, the USDC fell to around $0.87. Since then, the stablecoin has returned to par with the dollar, and Circle confirmed that it would be able to access the 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 that of rival Tether, whose USDT is valued at almost $73.6 billion.
Breaking: Signature Bank shut down by New York regulators, citing ‘systemic risk’
SVB was not the only crypto-friendly bank crash this week. On March 12, Manhattan-based Signature Bank was officially closed by the New York Department of Financial Services, supposedly to protect the US economy and bolster public confidence in the banking system. “The actions we took today were designed to limit the consequences of depositor outflows from Silicon Valley and Signature and to reduce any spillover effects,” a Treasury official said. Like SVB depositors, all Signature account holders will recover without affecting taxpayers. Signature Bank had nearly $89 billion in deposits as of December 31, 2022.
@federal Reserve @The United States Treasury @FDICgov issue a statement on actions to protect the US economy by strengthening public confidence in our banking system, ensuring that depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
South Korea launches ‘Metaverse Fund’ to accelerate national initiatives
“Metaverse” is still a vague and underdeveloped concept, but South Korea is taking it very seriously. The Seoul Ministry of Science and ICT announced it would allocate 24 billion won ($18.1 million) for metaverse development as part of a larger fund of 40 billion won ($30.2 million). The recently launched Metaverse Fund is said to be backing mergers and acquisitions of various metaverse-related companies, a move that could give the country an edge in the still-evolving sector. The metaverse arms race continues. As Cointelegraph reported earlier this month, Mark Zuckerberg’s Meta has obtained court approval to proceed with his metaverse acquisition plans.
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