The cryptocurrency crisis kicked into high gear early on Saturday as the failure of Silicon Valley Bank (SVB) threw some of the industry’s core plumbing into disarray.
Subsequently, Treasury Secretary Janet Yellen convened top financial regulators to discuss the collapse of the SVB. Shortly after, crypto markets went into turmoil, suggesting that the year-to-date bear market has entered an even deeper phase.
There are echoes of the global financial crisis of 2008, when bad news followed bad news. However in the case of crypto, which lacks a central bank like the Federal Reserve that can bail out the industry, the question arises: how will it end?
Circle Internet Financial’s USDC stablecoin has been largely removed from its intended $1 value — a sad development for a product designed as a place for investors to safely put money. The USDC/USDT pair (which tracks the Circle coin versus the larger one issued by Tether) sank as low as $0.89 on the Kraken exchange on Saturday at 03:49 UTC – amid market tensions following the FTX debacle. It has decreased somewhere. in November.
The financial services company confirmed late Friday that approximately $3.3 billion in reserves backing the world’s second-largest stablecoin have been linked to SVB.
Stable coins derive their value from those reserves; If one is worth more than $43 billion – as USDC was earlier Friday – there should be roughly as much cash or cash-like fixed-income instruments backing it somewhere. The market capitalization of USDC is now below $40 billion.
Gas fees, which measure how much it costs to complete an on-chain transaction, went up. For Ethereum, the average gas fee rose as high as 231 GVE, according to Nansen.ee, which was seen on Friday in the roughly 20 to 40 range.
Crypto was born in – and, for some, was – in response to the 2008 crisis. Satoshi Nakamoto’s bitcoin paper began in a world where governments only fueled the financial system by injecting money into it. Crypto lacks such a centralized authority. The consequences are unclear if SVB customers, including Circle and its USDC stablecoin, are forced to part with their funds.
So who, if anyone, will step in?
When Razer CEO Min-Liang Tan tweeted late Friday that Twitter should buy SVB and turn into a digital bank, Billionaire Elon Musk tweeted in response“I’m open to the idea.”