USDC Stablecoin and Crypto Market Crash After Silicon Valley Bank Collapses
The cryptocurrency crisis kicked into high gear early Saturday when the failure of Silicon Valley Bank (SVB) caused some of the industry’s core plumbing to go into overdrive.
In the aftermath, Treasury Secretary Janet Yellen convened top financial regulators to discuss the collapse of SVB. Not long after, the crypto markets went into turmoil, suggesting that the more than year-long bear market has entered an even darker phase.
There are echoes of the global financial crisis of 2008, when bad news was constantly followed by even worse news. Although in the case of crypto, which lacks a central bank like the Federal Reserve to save the industry, the question remains: How will it end?
Circle Internet Financial̵[ads1]7;s USDC stablecoin was massively reduced from its intended price of $1 – a harrowing development for a product designed as a place for investors to safely park money. The USDC/USDT pair (which tracks Circle’s coin versus the larger one issued by Tether) dipped as low as $0.89 on the Kraken exchange at 03:49 UTC on Saturday – far lower than it ever was amid the market turmoil that followed the November FTX debacle.
The financial company confirmed late Friday that around $3.3 billion of the reserves backing the world’s second-largest stablecoin were tied up at SVB.
Stablecoins derive their value from these reserves; if one is worth more than $43 billion – as the USDC was earlier on Friday – there should be about that much cash or cash-like fixed income instruments stored somewhere backing it up. USDC’s market capitalization has now fallen below $40 billion.
Gas fees, which measure how much it costs to complete an on-chain transaction, increased. For Ethereum, the median gas fee jumped as high as around 231 gwei, versus the 20 to 40 range seen earlier on Friday, according to Nansen.ai.
Crypto was born in the wake of—and for some, in response to—the crisis of 2008. Satoshi Nakamoto’s Bitcoin paper debuted in a world where governments had just propped up the financial system by pouring money into it. Crypto lacks such a centralized authority. If SVB customers, including Circle and its USDC stablecoin, are forced to take a haircut on their money, the consequences are unclear.
So who, if anyone, will step in?
When Razer CEO Min-Liang Tan tweeted late Friday that Twitter should buy SVB and become a digital bank, billionaire Elon Musk tweeted in response“I’m open to the idea.”