On 10 March 2023, Silicon Valley Bank (SVB) was shut down by regulators to become the second-largest bank collapse in the U.S. history since the 2008 financial crisis.
Fall of Silicon Valley Bank
On Wednesday, SVB had made a surprising announcement that they are are trying to raise $2.25 billion in capital to shore up their balance sheet. The reason being, SVB had invested in debt such as the U.S Treasuries and securities using the deposits received by their clients from the tech industry during the pandemic. However, as the interest rates hiked, the value of their investments fell. Many of their clients from the tech industry were also withdrawing funds in an attempt to continue funding their startups. As a result, SVB had to sell $21 billion of securities from its portfolio at a loss of $1.8 billion.
Following SVB’s announcement to raise capital, many major venture capital firms were reportedly advising their portfolio businesses to pull their funds from SVB, which led to a hysteria-induced bank run as they run out of cash for customers to withdraw.
By March 10, the bank was closed and put under the ownership of the Federal Deposit Insurance Corp (FDIC).
Impact on Cryptocurrency
On March 11, cryptocurrency company Circle Internet Financial confirmed and announced on Twitter that they had $3.3 billion of its reserves stuck with SVB due to the closure.
This sparked an almost immediate sell-off of Circle’s USDC stablecoin, causing it to fall of from its $1 peg and reach an all time low of $0.88. At the time of writing, USDC is currently sitting at $0.92.
Stablecoins are essentially cryptocurrencies that are designed to be pegged to a currency like the U.S Dollar and maintain a constant exchange rate. USDC is the second largest stablecoin in terms of market capitalization, just after Tether (USDT).
As USDC and USDT are the most popular stablecoins being used in trading cryptocurrencies, the sell-off from USDC has resulted in a spike in value of USDT up to $1.03 against U.S. Dollar on CoinMarketCap as investors seek a new avenue to store their money.
Following the crash of USDC, various cryptocurrency exchanges and companies such as Binance, Gemini and Tether have came out publicly to announce that they do not have any exposure with SVB.
Various exchanges such as Binance and Coinbase have also temporarily paused trading and conversions of USDC on their platforms to wait out for the next updates by the regulators on Monday.
