The failure of Silicon Valley Bank caused ripples in the crypto industry, but after mediation of US authorities, USDC and Bitcoin rallied. When the news of the SVB fallout broke, USDC stablecoin lost its 1:1 peg, and BTC suffered alongside. But eventually, authorities came to the rescue with plans to limit the fallout, causing USDC to regain its peg and BTC to gain 8% on Monday.
Measures to contain SVB fallout
The Federal Reserve and United States Treasury Department announced a wide range of measures to flatten the ripple caused by the collapse of the 16th largest bank in the US, Silicon Valley Bank (SVB), stating that the depositors could access their deposits on Monday. While USDC issuer Circle Internet Financial tried everything to assure investors, their 1:1 USD peg was secure.
US intervention claims Signature Bank
The attempts to minimize the damages to the banking system claimed New York-based Signature Bank, the second bank failure in days, and the third after the collapse of Silvergate bank, another crypto-friendly bank. As per the officials, depositors of Signature bank would also be made whole without costing anything to the taxpayers.
Similar to SVB, Signature also had a significant clientele from the tech sector. Plus, the securities on their balance sheets diminished with rates inversely proportional to rising interest rates. As per September 2022 data, one-fourth of Signature’s deposits were from the crypto industry, but later in December 2022, the bank announced slimming the crypto deposits by $8 billion.
Effects on the Crypto Industry
Circle lost a peg of their stablecoin USDC and hit an all-time low of $0.82 when their exposure to Circle worth $3.3 billion came to light. Even after ensuring they were secure, USD Coin still lost its peg. At the time of the writing, USDC was at $0.9895, with a jump of 3.19% in the last 24 hours.
Circle CEO Jeremy Allaire said the $3.3 billion reserve held captive at Silicon Valley bank would be completely available on Monday when US banks open. Also, the Circle’s USDC operation will remain open for business while including a new automated settlement through their Cross River Bank, a new partner with Circle.
Bitcoin managed to gain 7.33% in the last 24 hours to $22,065.87.
Many crypto analysts have warned against any assumptions for the market after these measures by the authorities. Alvin Taan, head of FX strategy at RBC Capital Markets in Singapore, argues that the market remains unsettled mainly from SVB’s failure.
Although the troubled market conditions ignited by SVB have tipped over the rising market expectations, the situation is evolving. Still, the surrounding volatility remains higher for at least a few days.
Bitstamp, despite Signature’s failure, argues that they would operate normally. At the same time, the biggest crypto exchange said that it should convert the remainder of the $1 billion industry recovery initiative from their stable coin to cryptocurrencies like BTC, ETH, etc.
The crypto exchange launched the Industry Recovery Initiative (IRI) in November 2022 to help good crypto projects facing a liquidity crisis after FTX-saga.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
Source: https://www.thecoinrepublic.com/2023/03/13/btc-and-usdc-rally-to-avoid-further-damages-after-us-mediation/