Banks down? That is why Bitcoin was created, crypto community says

March 11, 2023 Coin Telegraph

Banks

Silicon Valley Bank (SVB) collapse on March 10 has sparked fear, doubt, and uncertainty (FUD) across the crypto community.

Silicon Valley Bank (SVB) collapse on March 10 has sparked fear, doubt, and uncertainty (FUD) across the crypto community, leading many to come back to crypto roots, reviving the Bitcoin white paper published just weeks after the Lehman Brothers meltdown in 2008.

It's truly amazing how many people are scared that a couple banks went down. Someone tell these people WHY BITCOIN WAS CREATED.
— Toby Cunningham (@sircryptotips) March 11, 2023

"There’s an entire generation of builders who only read about Lehman and the financial crisis and scoffed at Bitcoin. Now, their eyes are wide open. Welcome new friends," stated on Twitter Ryan Selkis, founder and CEO of Messari.

in shock

that is all

the SPEED at which all of this is happening is unbelievable
— Meltem Demirors (@Melt_Dem) March 10, 2023

Approximately six weeks after the dramatic collapse of the American bank, Satoshi Nakamoto released the now famous white paper that paved the way for the emergence of the Bitcoin network.

Some people blame the SVB failure on the rising interest rates in the United States. The Federal Reserve increased its benchmark rate over the past year to more than 4.5% - the highest rate since 2007. In January, the inflation rate in the US was 6.4%.

Add “interest rate driven bank run” to the increasingly long list of “things I did not think I’d see in 2023”
— Sheila Warren (@sheila_warren) March 10, 2023

Many crypto and tech companies are affected by the collapse of Silicon Valley Bank. USD Coin (USDC) issuer Circle revealed it could not withdraw $3.3 billion of its $40 billion reserves from SVB, leading to a sell-off and the stablecoin's price dropping below its $1 peg.

Less than 24 hours old and already experienced his first bank run. pic.twitter.com/PjqGh1UAXg
— Michael Bentley (@euler_mab) March 11, 2023

SVB, a Federal Deposit Insurance Corporation-insured bank, was about to shut down operations when Circle initiated a wire transfer to remove its funds. The stablecoin ecosystem felt an immediate effect as USD Coin depegged from the U.S. dollar. USDC's collateral influence prompted major stablecoin ecosystems to deppeg from the dollar. Dai (DAI), a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging, Cointelegraph reported.

Stablecoins
Stablecoins
Stablecoins
Stablecoins
Stablecoins
Stablecoins
Unstablecoins
— Cope (@Timccopeland) March 11, 2023

Other popular stablecoin, such as Tether (USDT) and Binance USD (BUSD) continue to maintain a 1:1 peg with the U.S. dollar.

SVB was shut down by the California Department of Financial Protection and Innovation for undisclosed reasons. The California watchdog appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits. However, the FDIC only insures deposits up to $250,000 per depositor, per institution and per ownership category.

Bitcoin price spikes to ‘$26K’ in USDC terms — How high can the BTC short squeeze go?

March 11, 2023 Coin Telegraph

Bitcoin

Bitcoin recovers from the depegging of USDC, the second-largest stablecoin, from the U.S. dollar.

Bitcoin (BTC) refused to let $20,000 support die for good on March 11 as the weekend opened to a battle for lost ground.

*BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView*

Bitcoin shakes off USDC depeg

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD circling $20,200 at the time of writing.

A brief dip below the $20,000 mark overnight was short lived, and the mood appeared more stable on the day as the initial wave of panic over United States bank stability subsided.

The collapse of SVB Financial, which followed Silvergate in dealing a fresh blow to some crypto firms, nonetheless continued to play out.

At the heart of the debacle this time was Circle, the Blockchain firm which overnight revealed that it had lost part of the reserve funds for its stablecoin, USD Coin (USDC) with SVB.

USDC immediately began to slide from its U.S. dollar peg, and at the time of writing was redeemable for only $0.91, while at one point making Bitcoin worth more than $26,000 in USDC terms on major exchange Kraken.

*BTC/USDC 1-hour candle chart (Kraken). Source: TradingView*

"If USDC is only 90% backed, the equilibrium price is NOT $0.90. The equilibrium price is ZERO," Cory Klippsten, CEO of Swan Bitcoin, reacted.

"Everyone has the incentive to redeem asap for $1. You don't want to be in the last 10%, with all the money already gone."

Others believed that the situation was manageable and that USDC, the second largest stablecoin by market cap, would not fail altogether.

2/ The worst has already happened

We now know that 8.2% ($3.3B out of $40B) is currently stuck in SVB, but it doesn't mean that the money is gone.

As Adam pointed out, in a similar FDIC recovery process, we can expect a 94% payout.

So the damage could be around $198M USD. https://t.co/xvshlKuCmZ
— Ignas | DeFi Research (@DefiIgnas) March 11, 2023

In a tweet, Circle itself said that it had a further five banking partners for managing its USDC cash reserves.

Funding rates mimic FTX mood

Beyond USDC, nerves among traders predictably remained.

Average funding rates were at their most negative since the FTX aftermath in November 2022, indicative of a strong belief that further losses could still enter for Bitcoin.

*Bitcoin average funding rate chart. Source: Coinglass*

Analyzing the implications, however, commentator Tedtalksmacro argued that overwhelming bearish bias could provide fuel for a classic "short squeeze" higher on BTC/USD.

"The market remains heavily short here, still. And that could provide fuel for BTC to test at least 21.4k short-term," part of a tweet read.

"Tedtalksmacro added that a squeeze was already "well underway" based on Bitcoin's bounce off multi-week lows beneath the $20,000 mark.

Other popular market participants favored a return to downside in the short term.

"Amongst the madness today, Bitcoin remains good. I am anticipating another drop down to the interim support zone around $19,200," Crypto Tony told followers.

*BTC/USD annotated chart. Source: Crypto Tony/ Twitter*

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

USDC depegs as Circle confirms $3.3B stuck with Silicon Valley Bank

March 11, 2023 Coin Telegraph

USDC depegs as Circle confirms .3B stuck with Silicon Valley Bank

Banks

At the time of writing, USDC lost 3% of its value as it traded at $0.969, and a Circle executive envisions broader implications for business, banking and entrepreneurs without a Federal rescue plan.

Almost immediately after USD Coin (USDC) issuer Circle revealed it was not able to withdraw $3.3 billion of its $40 billion from Silicon Valley Bank (SVB), the resultant sell-off caused the price of the stablecoin to fall below its $1 mark.

On March 9, Circle had initiated a wire transfer for the removal of its funds from SVB as the Federal Deposit Insurance Corporation-insured bank was about to shut operations. However, two days later, on March 11, Circle confirmed that the wire transfers were not completely processed and that $3.3 billion of the USDC reserves was still with SVB.

2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023

Data from Cointelegraph Markets Pro and TradingView show that USDC prices fell down immediately after the revelation, as shown below.

*USDC depegs from the US dollar. Source: CoinMarketCap*

At the time of writing, USDC lost 3% of its value as it traded at $0.969. According to Dante Disparte, the chief strategy officer and head of global policy for Circle, SVB is critical to the US economy and warned that “its failure — without a Federal rescue plan — will have broader implications for business, banking and entrepreneurs,” adding:

“As with Silvergate, our teams have worked at speed to limit any exposure to banks. This includes a wire transfer request made before SVB's FDIC receivership. A $3.3 billion cash exposure remains - but we follow state and Federal regulatory guidance.”

On-chain data further reveals that Circle redeemed a net of $1.4 billion in USDC in the span of 8 hours. In an effort to reduce exposure, crypto companies including Coinbase and Jump Trading redeemed approximately $850 million and upto $138 million in USDC.

Just two week ago, on Feb. 23, USDC issuer Circle announced plans to increase its staff headcount by 25% — going against the ongoing layoff trend.

During the timeline, Circle’s chief financial officer Jeremy Fox-Geen had shared their intent to go public but planned on waiting for better market conditions. He added that the crypto industry needs more distance from the Terra and FTX implosions for public-market investors to re-evaluate the future of digital-assets businesses.

Breaking: Circle discloses $3.3B tied up at Silicon Valley Bank

March 11, 2023 Coin Telegraph

Circle

Circle joined other customers and depositors in calling for the continuity of SVB in the US economy.

On March 10, Blockchain payment tech company and USD Coin (USDC) issuers Circle confirmed that wires initiated on Thursday to remove balances have not yet been processed, leaving $3.3 billion of its $40 billion USDC reserves at Silicon Valley Bank (SVB).

Concerns have been growing over USDC late this week due to Circle disclosing in its latest audit that as of Jan. 31, $8.6 billion, or roughly 20% of its reserves, was held up in several financial institutions, including the recently bankrupted Silvergate, and shuttered SVB.

In a bid to provide transparency on the matter, Circle disclosed via Twitter on March 10 that:

“Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.”

Circle said it is now joining other customers and depositors in calling for the continuity of SVB, which the company alleged is important for the U.S. economy. Circle stated on Twitter that it will follow guidance provided by state and Federal regulators.

2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023

Adding to Circle's statement, the firm's chief strategy officer and head of global policy emphasized that "Circle is currently protecting USDC from a black swan failure in the U.S. banking system," as he called for a SVB rescue plan from the Federal Deposit Insurance Corporation (FDIC):

Without a Federal rescue plan - will have broader implications for business, banking and entrepreneurs.

We join the calls from policymakers, regulators, investors, businesses and, most of all, people who rely on a well-functioning U.S. banking system as a condition precedent of growing an economy. We will all be smarter on Monday.
— Dante Disparte (@ddisparte) March 11, 2023

Notably, prior to the announcement USDC was sitting below its $1-peg at $0.98 as per CoinGecko data, however promptly after, the price has dropped significantly to $0.93 at the time of writing.

The statement followed news that Silicon Valley Bank, a major financial institution for venture-backed companies, was shut down by California's financial watchdog, making it the first Federal Deposit Insurance Corporation-insured bank to fail in 2023.

Although the exact reason for the closure remains unclear, the California regulator appointed the FDIC as the receiver to protect insured deposits. SVB, one of the United States' 20 largest banks by total assets, provided financial services to several crypto-focused venture firms, including Andreessen Horowitz and Sequoia.

Coinbase and Binance pause USDC conversions

Adding to the USDC related woes, roughly 30 minutes after Circle's latest statement, Coinbase announced that it is "temporarily pausing USDC:USD conversions over the weekend while banks are closed."

"During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions," the firm stated.

We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.
— Coinbase (@coinbase) March 11, 2023

Such a move highlights the difficulty that centralized crypto companies are facing now that Silvergate is longer providing them with round the clock banking services.

On the same day, Binance also announced via Twitter that the crypto exchange has “temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.”

Binance has temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.

This is a normal risk-management procedural step to take while we monitor the situation.
— Binance (@binance) March 11, 2023

“This is a normal risk-management procedural step to take while we monitor the situation,” the firm added.

Circle’s exposure to U.S. banks could top $9B

March 10, 2023 Coin Telegraph

Banks

Circle's reserves are held in a number of banks in the United States, including Silvergate, Silicon Valley Bank, and Bank of New York (BNY) Mellon.

USD Coin (USDC) issuer Circle exposure to the United States banking system sits near to $9 billion, according to its latest audit report from January. Circle's reserves are held in a number of regulated financial institutions in the country, including Silvergate, Silicon Valley Bank, and Bank of New York (BNY) Mellon.

According to the report, the amount held in cash by U.S. regulated financial institutions was at $8.6 billion as of January 31, meaning roughly 20% of its reserves. Another $33.6 billion of Circle's reserves are held in U.S Treasuries managed by BlackRock through the Circle Reserve Fund, registered as a government money market fund and with funds held by BNY Mellon.

It's unclear how much of Circle's cash reserves were held by Silicon Valley Bank (SVB). Other banks holding the company's reserves are Citizens Trust Bank, Customers Bank, New York Community Bank, a division of Flagstar Bank, and Signature Bank. USDC is the second-largest stablecoin with a $42 billion circulation supply as of January 31.

Circle's January report was reviewed and certified by big four accounting firm Deloitte. Cointelegraph did not immediately receive a response from Circle prior to publication.

SVB is one of the biggest lenders in the United States and a major player for venture-backed companies. The bank was shut down on March 10 by the California Department of Financial Protection and Innovation, fueling fears about its future. The Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver to protect insured deposits.

Dave Weisberger, CEO and co-founder of algorithmic-trading platform CoinRoutes, told Cointelegraph that the "fodder for a broader contagion event is there", and "the spark could be materializing," putting in risk many startups and tech companies in the country, a critical sector for the "sustained growth of the American economy."

Weisberger also noted:

“A good many tech firms – startups but also Big Tech companies – have deep exposure to SVB. If the government doesn’t step in and effectively carry out a bailout of some sort, then we should be expecting these companies to struggle to pay their employees, as well as layoffs and, possibly, rising unemployment."

Earlier this week, Silvergate Capital Corporation disclosed plans to shut down its crypto bank arm citing "recent industry and regulatory developments.” According to the company, the liquidation plan included “full repayment of all deposits". Silvergate was a major crypto-fiat gateway network for financial institutions and a significant on-ramp for cryptocurrencies in the United States.

Circle denied having any current exposure to Silvergate. According to a March 4 statement, Circle transferred the "small percentage of USDC reserve deposits held" to other banking partners.

Previously, sources told Cointelegraph that U.S. authorities are coordinating a regulatory crackdown on banks serving crypto firms, using multiple agencies to discourage the relationship between traditional institutions and the emerging industry.

Silvergate Bank Announces Voluntary Liquidation as Crypto Industry Woes Persist

March 8, 2023 Bitcoin.com

Flurry of Additional Crypto Companies Back Away From Silvergate As Crypto Markets Dip Across the Board

March 4, 2023 The Daily Hodl

Coinbase cutting ties with Silvergate forces crypto hedge fund to find a new bank

March 3, 2023 Coin Telegraph

Asset Management

A total of five crypto companies ended their partnership with Silvergate Bank on March 2 after a series of lawsuits and investigations against the bank.

Silvergate Bank — a prominent lender to crypto firms — lost five partners on March 2 due to a slew of investigations and lawsuits against it.

Coinbase, Paxos, Gemini, BitStamp and Galaxy Digital were some of the most notable crypto firms using Silvergate as their banking partner. However, the termination of service by Coinbase has also forced a crypto hedge fund to look for an alternate banking partner.

Today Silvergate has lost

Coinbase
Circle
Paxos
Galaxy
CBOE

RIP https://t.co/XlexB5u2wD
— db (@tier10k) March 2, 2023

On March 3, a crypto hedge fund called Digital Asset Capital Management (DACM), with assets worth over $400 million, announced it was looking for a new banking partner in Switzerland post-Silvergate chaos. DACM used Silvergate’s real-time network to move funds to and from Coinbase Global’s platform.

In an interview with Bloomberg, DACM co-founder Richard Galvin said that although certain banks in the United States can handle crypto transactions, they are not as crypto-focused as Silvergate. He added that finding a new partner could take time, and they are “speaking to some Swiss banks.”

Switzerland was one of the first countries to regulate and offer banking licenses to crypto banks. SEBA Bank AG, for example, is a fully-regulated institution that secured a banking and securities dealer license from the Swiss Financial Market Supervisory Authority in August 2019.

Silvergate was popular with crypto companies because of its instant and real-time bank transfer services. Thus, moving funds in the absence of such facilities might take longer. In the U.S., Signature Bank seems to be the next popular fintech bank of choice for crypto companies. Coinbase had already shifted its prime customer’s banking transfers to Signature Bank.

Signature Bank might be the next best choice for crypto firms, but the question is for how long? In December 2022, Signature Bank announced its intention to withdraw up to $10 billion in deposits from clients holding digital assets, starting a general exodus from the cryptocurrency sector. The bank had already severed ties with Binance, discontinuing its SWIFT banking services for the crypto exchange.

While crypto companies have always found it difficult to find a banking partner due to the absence of clear regulations around the market, the Silvergate saga has raised the difficulty level of transferring cash to crypto exchanges.

Circle, Paxos, Bitstamp and Galaxy join Coinbase in scaling back partnerships with Silvergate Bank

March 2, 2023 Coin Telegraph

Business

Silvergate is reportedly facing an investigation from the United States Department of Justice over its alleged role in the FTX collapse, involving Sam Bankman-Fried's account.

Several crypto firms have announced they will scale back or outright terminate their relationship with Silvergate Bank following an announced investigation into its alleged involvement in the FTX collapse.

Amid news that crypto exchange Coinbase would no longer accept or initiate payments with Silvergate, companies including stablecoin issuers Paxos and Circle and Mike Novogratz's Galaxy Digital have announced similar actions regarding their partnerships with the crypto bank. Galaxy Digital announced on March 2 that it had stopped accepting or initiating transfers to the bank “out of an abundance of caution”.

In separate posts on Twitter on March 2, Paxos said it had already “discontinued all [Silvergate Exchange Network] transfers and wires” to the firm’s account, but would continue to process outgoing payments. Circle added it was “in the process of unwinding certain services” with Silvergate, and Bitstamp said its bank transfer services would be provided by “other global banking partners”.

“Please be aware that Bitstamp cannot be responsible for any funds deposited into the Silvergate bank account,” said the firm. “If you do choose to deposit funds into this account, you do so at your own risk.”

As a precautionary measure in light of recent news, we are no longer processing transfers with Silvergate.
Bank transfer services will now be provided by our other global banking partners. Bitstamp client funds remain secure and fully available.
Read more: https://t.co/8Re4cXFstD
— Bitstamp (@Bitstamp) March 2, 2023

The termination of partnerships with Silvergate followed reports the bank was facing an investigation from the United States Department of Justice over its alleged involvement in the FTX collapse. Former FTX chief executive officer Sam Bankman-Fried — also the target of a criminal investigation — held an account with the crypto bank.

Silvergate announced in a March 1 filing with the U.S. Securities and Exchange Commission that it did not expect to submit its report on the 2022 fiscal year by March 16. Shares of the crypto bank’s stock have already fallen more than 55% in the last 24 hours, reaching $5.97 at the time of publication.

Citizens Trust Bank to Hold $65 Million in USDC Reserves as Circle Expands Bank Partnerships

February 25, 2023 Bitcoin.com

Circle

Bitcoin shakes off USDC depeg

Funding rates mimic FTX mood

Coinbase and Binance pause USDC conversions

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