Early on Saturday, the cryptocurrency crisis reached a fever pitch as a result of Silicon Valley Bank’s (SVB) bankruptcy, which threw some of the sector’s fundamentals for a loop.
Hours after regulators closed SVB amid a run on the bank, which had ties to cryptocurrency, speculators hurried to shift money around, causing stablecoin prices to swing dramatically and gas costs to spike. This week, a second cryptocurrency-linked bank failed.
Top financial authorities were gathered by Treasury Secretary Janet Yellen to discuss the demise of SVB. Soon after, the crypto markets started to experience instability, indicating that the more than year-long bear market has now entered an even more depressing stage.
There are parallels of the world financial crisis of 2008, in which bad news was consistently followed by even worse news. Yet, the question of how it will finish lingers in the case of cryptocurrencies because there isn’t a central bank like the Federal Reserve that can support the sector.
The USDC stablecoin from Circle Internet Finance significantly depreciated from its target price of $1, which was a terrifying development for a product meant to be a secure storage option for investors’ funds. The USDC/USDT pair (which tracks Circle’s coin versus the bigger one issued by Tether) sank as low as $0.869 on the Kraken exchange at 07:16 UTC on Saturday – far lower than it ever got amid the market stresses that followed the FTX debacle in November. It was formerly roughly $0.94.
The financial services giant said late on Friday that SVB was holding roughly $3.3 billion of the reserves supporting the second-largest stablecoin in the world.
These reserves are what give stablecoins their value; if one is worth more than $43 billion, as USDC was earlier on Friday, then there should be roughly that much cash or cash-like fixed-income instruments stowed away somewhere to support that. The market value of USDC has now fallen below $40 billion.
Meanwhile, as investors appeared to be moving their money away from USDC, USDT briefly rose to $1.06 on Kraken in relation to the US dollar. Bitcoin increased once more to $20,000.
Gas fees, which reflect the price associated with completing an on-chain transaction, increased. According to Nansen.ai, the average gas fee for Ethereum increased from the 20–40 gwei range reported earlier Friday to as much as 231 gwei.
In the wake of the 2008 financial crisis—and, some would argue, in response to it—crypto was created. In a world where governments have recently supported the financial system by pumping money into it, Satoshi Nakamoto’s Bitcoin paper made its appearance. Cryptocurrency lacks a similar centralised power. The consequences are unknown if SVB clients, including Circle and its USDC stablecoin, are required to take a financial hit. Elon Musk, the billionaire, said, “I’m open to the concept,” in response to Razer CEO Min-Liang Tan’s late-Friday tweet suggesting that Twitter purchase SVB and transform into a digital bank.