The cryptocurrency crisis kicked into high gear early Saturday as the failure of Silicon Valley Bank (SVB) caused some of the industry’s central pipelines to break badly.
Afterward, Treasury Secretary Janet Yellen convened top financial regulators to discuss SVB’s collapse. Soon after, crypto markets went into meltdown, suggesting that the more than year-long bear market has entered an even darker phase.
There are echoes of the global financial crisis of 2008, when bad news was 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 will it end?
Circle Internet Financial’s USDC stablecoin deviated massively from its predicted price of $1 — a chilling development for a product designed as a place for investors to park money safely. The USDC/USDT pair (which tracks Circle’s coin versus the largest Tether-issued one) sank as low as $0.89 on the Kraken exchange at 03:49 UTC Saturday, much lower than it has ever been amid the market tensions that followed the FTX debacle. in november
The financial services company confirmed late Friday that about $3.3 billion of the reserves backing the world’s second-largest stablecoin were tied to SVB.
Stablecoins derive their value from these reserves; if one is worth more than $43 billion, like the USDC was before Friday, there should be about that much cash or cash-like fixed income tucked away somewhere backing it. USDC’s market cap has fallen below $40 billion.
Gas fees, which measure how much it costs to complete an on-chain transaction, rose. For Ethereum, the average gas rate rose to around 231 gwei, compared to the roughly 20 to 40 range seen earlier Friday, according to Nansen.ai.
Crypto was born in the wake of the 2008 crisis and, for some, as a response to the crisis. Satoshi Nakamoto’s Bitcoin paper debuted in a world where governments had just propped up the financial system by pouring money into it. Crypto does not have such a centralized authority. If SVB’s customers, including Circle and its USDC stablecoin, are forced to cut their money, the repercussions are unclear.
So who, if anyone, will step in?
When Razer CEO Min-Liang Tan tweeted Friday afternoon that Twitter should buy SVB and become a digital, multi-billion dollar bank Elon Musk tweeted in response“I’m open to the idea.”