At the end of last week, the crypto market broke out in cold sweat after the announcement of SVB's bankruptcy. Circle's exposure has significantly raised fears of a domino effect on other crypto players. If everything is not back to normal yet, the situation seems to be improving.
Before discussing the implications, let's recontextualize the timeline of Sillicon Valley Bank's bankruptcy. Last Wednesday, the bank announced that it wanted to consolidate its balance sheet by increasing $2.25 billion. An announcement that had the direct effect of triggering a wave of panic among depositors, but also dampened the bank's action, which would suspend its quotation the next day.
Starting Friday, the bank was ordered to close the store by the California regulatory authority, following the announcement of a major asset sale to raise capital. The California regulator then appoints the FDIC (Federal Deposit Insurance Corporation) as the judicial manager of the file. Prior to its bankruptcy, the bank was among the 20 largest banks in the United States. He has worked with famous players, especially Sequoia Capital or Andreessen Horowitz, and even some cryptocurrency players.
FED promises deposit guarantee!
If the bank's bankruptcy could be dramatic for many tech companies and SVB shareholders, the US central bank wanted to reassure depositors about the possibility of getting their funds back. Yesterday, the FED and FDIC chairs Jérôme Powell and Martin Gruenberg announced “decisive actions” to protect depositors of Silicon Valley Bank, as well as Signature Bank:
The FED also announced that depositors will have access to all of their deposits from Monday, March 13. Adding in passing that no loss will be borne by the taxpayer.
Good to Know: The bankruptcy of the bank soon caused panic among the depositors. In fact, 96% of those amounts were not covered by traditional guarantees (up to $250.000 per customer and bank).
In addition, the Fed has made a commitment to lend to banks that will face a large influx of withdrawals in the coming days or weeks. This fund, which reaches $25 billion, comes from the Treasury reserve. With the BTFP program (Bank Term Funding Program), many banks and custodians will be able to extend loans with a maximum maturity of one year. The aim is to limit the spread of the liquidity crisis as much as possible.
Crypto sphere affected by the bankruptcy of the bank!
The crypto market is also affected if the bank's action is immediately confirmed by the markets. And for good reason, it seems that a few crypto companies are exposed to SVB.
This is especially true for Circle, the company that issues stablecoin USDC, which will hold $3,3 billion in SVB. The company's sözcüIf the forwards wanted to play the appeasement card, the owners largely sold the asset. Panic saw about 10% of USDC's depele, sending cold sweats to some who thought they were reliving the Terra episode at the time.
This depeg also resulted in a domino effect, causing other stablecoins like DAI and USDD to stall. In its communication, Coinbase made it clear that the company will use its own resources to fill the gap caused by the decline of SVB.
Other USDC exposure players have also drafted an emergency proposal to limit exposure. This is the case of MakerDAO, for example, which has $3,1 billion in USDC. looks like today
Officials show their teeth!
Although the conditions may seem different, this bankruptcy revives the Lehmann Brothers era, which was the trigger of a worldwide crisis.
Yesterday, Treasury Secretary Janet Yellen said the state would not bail out the bank. That's why most of the measures seem to focus on depositors and how to prevent the spread of the crisis. Joe Biden has made it clear that he is determined to hold SVB officials "fully responsible" for the company's plight.