The cryptocurrency crisis kicked into high gear on Saturday morning, as the failure of Silicon Valley Bank (SVB) caused some of the industry’s basic plumbing to go out of whack.
In the aftermath, Treasury Secretary Janet Yellen convened key financial regulators to discuss SVB’s collapse. Soon after, crypto markets entered turmoil, suggesting that the year-plus bear market had entered an even darker phase.
There are echoes of the global financial crisis of 2008, when bad news kept being followed by even worse news. Although in the case of crypto, which does not have a central bank like the Federal Reserve that can bail out the industry, the question remains: how is this going to end?
Circle Internet Financial’s stablecoin USDC has pulled back massively from its predicted price of $1 – a heartbreaking development for a product designed as a safe place for investors to park their money. The USDC/USDT pair (which trails Circle’s coin to the largest Tether-issued) fell to $0.89 on the Kraken exchange at 03:49 UTC on Saturday – much lower than it has ever been amid market tensions following the FTX debacle in November.
The financial services firm confirmed late Friday that around $3.3 billion of the reserves backing the world’s second-largest stablecoin were locked 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 stashed away somewhere for the to safeguard. USDC’s market capitalization has now fallen below $40 billion.
Gas fees, which measure how much it costs to complete an on-chain transaction, have increased. For Ethereum, median gas fees climbed to around 231 gwei, from the range of around 20-40 seen earlier on Friday, according to Nansen.ai.
The crypto was born in the aftermath of – and, for some, in response to – the 2008 crisis. Satoshi Nakamoto’s Bitcoin paper got its start in a world where governments had just propped up the financial system by pouring money into it. money. Crypto has no such centralized authority. If SVB clients, including Circle and its USDC stablecoin, are forced to take a haircut on their money, the repercussions are unclear.
So who, if anyone, will intervene?
When Razer CEO Min-Liang Tan tweeted Friday night that Twitter should buy SVB and turn into a digital bank, the billionaire Elon Musk tweeted in response“I’m open to the idea.”