Crypto Crisis Escalates After SVB Failure
The cryptocurrency industry was thrown into chaos as the failure of SVB caused some of its core systems to malfunction. Stablecoin prices fluctuated wildly, and gas fees rose as investors rushed to move their money. This marks the second crypto-linked bank for failing this week. In response, Treasury Secretary Janet Yellen called a meeting with top financial regulators to discuss the collapse of SVB.
Echoes of the 2008 Financial Crisis in Crypto Markets
The turmoil in the crypto market has raised questions about how the industry will end, as it lacks a central bank like the Federal Reserve to bail it out. The situation is similar to the 2008 financial crisis, where bad news was followed by even worse news.
USDC Stablecoin Depegs from $1 Price
Circle Internet Financial's USDC stablecoin experienced a major drop from its intended $1 price, causing concern for investors who use it as a haven for their money. The USDC/USDT pair sank as low as $0.89 on the Kraken exchange, far lower than it ever got during market stress in November. The financial services company confirmed that $3.3 billion of the reserves backing USDC were tied up at SVB.
Market Capitalization of USDC Drops Below $40 Billion
The value of USDC is tied to its reserves, so if its market capitalization is $43 billion, there should be approximately that much cash or cash-like fixed-income instruments to back it up. However, USDC's market capitalization has now fallen below $40 billion. USDT, on the other hand, spiked to $1.06 on Kraken as investors appeared to shift their money away from USDC.
Gas Fees Soar as Crypto Markets Enter Dark Phase
Gas fees, which measure the cost of on-chain transactions, skyrocketed. The median gas fee for Ethereum jumped to 231 gwei versus the 20-to-40 range seen earlier.
Unclear Consequences for Crypto After SVB Collapse
Crypto was created in response to the 2008 financial crisis and lacked a centralized authority. If SVB customers, including Circle and its USDC stablecoin, are forced to take a loss on their money, the consequences are unclear. It remains to be seen who, if anyone, will step in to mitigate the damage.
Elon Musk Open to the Idea of Twitter Buying SVB
When the CEO of Razer tweeted that Twitter should buy SVB and turn it into a digital bank, billionaire Elon Musk replied, "I'm open to the idea."