Cryptocurrency investors should know by now that it doesn't take much to topple a struggling multi-billion dollar company. California regulators formally shut down Silicon Valley Bank (SVB) on March 10, 48 hours after it disclosed it was in financial trouble. 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 U.S. federal regulators to step up and support SVB depositors before the bank run occurred. Although government protection measures were not enough to prevent the sharp decline in bank stocks after the market reopened on Monday, Bitcoin. The broader cryptocurrency market soared. Did the FDIC Bail Out Bitcoin? Only time will tell.
The fiasco of SVB, Circle’s USD token, sparked a brief but intense period of fear and panic in the crypto market USDC decoupling. The only thing Circle did wrong was park some of its deposits in SVB when it collapsed. This week's Crypto Biz tries to make sense of SVB's failure and its impact on the crypto market.
Silicon Valley Bank shut down by California regulators
On March 10, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank and designated the FDIC as a recipient to protect insured deposits. The news sparked a sell-off in cryptocurrency and financial markets, as SVB is a top 20 U.S. bank by total assets. So, what forced regulators to close the banks? Earlier this week, SVB issued a mid-quarter financial update in which it disclosed a $1.8 billion loss related to securities sales and a need to raise $2.25 billion to shore up operations. SVB was a trusted partner to many cryptocurrency-focused venture capital firms, but its demise ultimately had to do with duration risk rather than crypto industry exposure. Washington quickly put out the SVB fire by announcing that all depositors, not just accounts worth up to $250,000, would be protected. President Joe Biden later confirmed that propping up savers would cost taxpayers nothing.
Circle 'Able to Use' Silicon Valley Bank's $3.3B USDC Reserve, CEO Says
One of the companies caught in SVB’s crosshairs is stablecoin issuer Circle, which has $3.3 billion in reserves tied to the failing bank. Once SVB collapsed, USDC lost stablecoin market share and its peg to the U.S. dollar, as it was unclear if and when Circle would have access to its funds. At its lowest point, USDC fell to around $0.87. The stablecoin has since regained parity with the U.S. dollar, with Circle confirming that it has access to reserves held by SVB. Circle has lost significant market share over the past week due to ongoing USDC redemptions. USDC’s market capitalization is currently $38.4 billion, less than half that of rival Tether, whose USDT market cap is nearly $73.6 billion.
BREAKING: New York regulators shut down Signature Bank, citing 'systemic risk'
SVB wasn't the only crypto-friendly bank to fail this week. On March 12, Manhattan-based Signature Bank was officially closed by the New York Department of Financial Services, allegedly to protect the U.S. economy and boost public confidence in the banking system. “The actions we are taking today are aimed at limiting the fallout from the outflow of depositors from Silicon Valley and Signature and reducing any spillover effects,” a Treasury official reportedly said. Like SVB depositors, all account holders at Signature will become complete without affecting taxpayers. Signature Bank had nearly $89 billion in deposits as of December 31, 2022.
South Korea launches 'Metaverse Fund' to speed up domestic initiatives
The "Metaverse" is still a vague and underdeveloped concept, but South Korea takes it very seriously. Seoul's Ministry of Science and ICT announced that it will allocate 24 billion won ($18.1 million) for Metaverse development as part of a larger plan 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 a still-growing industry. The metaverse arms race continues. As reported earlier this month, Mark Zuckerberg’s Meta received court approval to proceed with its metaverse acquisition plans.
