CoinLoan Weekly: Market rebound, USDC recovery, impact of SVB shutdown

Price dynamics

BTC price

Bitcoin was idle at around $22,500 before dipping to $22,000 on Wednesday, March 8, and cratering below $21,700 the next day. The price reached $20,207.42 early on Friday, March 10, and hit a seven-day low of $19,662.44. After trading above $20,640 at the start of the weekend, BTC kept close to $20,400. It regained ground on Monday, March 13, ricocheting to over $24,300.

On Friday, the Crypto Fear and Greed Index slid to fear as US regulators seized Silicon Valley Bank. Its downfall was triggered by what Ryan Falvey, a Restive Ventures fintech investor, called a "hysteria-induced bank run caused by VCs." Resulting in the second-biggest banking failure in US history, it also led to the shutdown of Signature Bank.

Due to its issuer’s exposure to SVB, USDC lost its peg, and DAI and PAX followed suit. On Saturday, March 11, the total crypto market cap shrank to under $920 billion for the first time since November 2022. Eventually, regulators' interventions allayed investor fears, triggering a crypto rebound.

At press time, BTC is trading at $24,528.00, with a 24-hour gain of +10.1% and a 7-day rise of +9.4%.

BTC price chart. Source: CoinGecko
BTC price chart. Source: CoinGecko

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ETH price

ETH dove and rebounded, tailgating BTC. It lay flat at about $1,570 until Thursday, March 9, when it dipped and plunged nearly vertically. After sinking below $1,430, the coin hit a seven-day low of $1,379.43 on Friday, March 10. ETH then bounced back quickly, approaching $1,470 early on Saturday, March 11. It maintained that level through the weekend and touched $1,700 on Monday, March 13.

The banking domino effect was not the only factor sparking a plunge. On Friday, March 10, New York Attorney General Letitia James called ETH, LUNA, and UST "securities and commodities" in a lawsuit against KuCoin. That was the first time a US regulatory official mentioned the possibility of treating ETH as a security.

Such a classification may have broad implications for the industry, although the effects on the Ethereum network and token are unclear. However, the crypto advocacy group Coin Center, which detailed why Ether was not a security in 2018, refuted those assertions, reiterating its arguments.

At the time of writing, ETH is worth $1,682.01, with 24-hour growth of +5.2% and a 7-day increase of +7.3%.

ETH price chart. Source: CoinGecko
ETH price chart. Source: CoinGecko

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XRP price

XRP rose through the first half of the week. After dipping to roughly $0.363, it reached above $0.397 on Thursday, March 9, tumbled, and bounced back from $0.366799 around midnight. The next day brought a deeper fall — to $0.361285. Subsequently, XRP traded above $0.366 until a 7-day low of $0.353672 on Sunday evening. On Monday, March 13, it regained momentum, reaching $0.377 in the late hours.

XRP's performance was hindered by its confirmed exposure to Silicon Valley Bank. On Monday, March 13, CEO Brad Garlinghouse tweeted that SVB had been Ripple's banking partner holding some of its cash balance. However, the tech company did not expect any disruption to its day-to-day operations, and it kept most of its US dollars in "a broader network of bank partners." Yet XRP failed to match the performance of BTC and ETH.

However, the week brought a few small victories in the ongoing SEC vs. Ripple court case. The judge granted Ripple's motion to remove an SEC's expert witness and rejected the regulator's motion to remove John E. Deaton, a crypto-focused lawyer, as a witness for Ripple.

As of this writing, XRP is trading at $0.370967, with a 24-hour uptick of +1.1% and no 7-day change.

XRP price chart. Source: CoinGecko
XRP price chart. Source: CoinGecko

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Cryptocurrency news

Investors relieved as USDC regains peg

On Friday, the crypto market was shaken as Silicon Valley Bank became the largest US lender to fail in over a decade. The exposure of Circle, the USD Coin (USDC) issuer, to SVB caused the second-largest stablecoin to depeg the US dollar. However, the dip proved temporary.

The toll on Circle

USDC is the market cap runner-up behind Tether (USDT). On Saturday, March 11, Circle's token fell as low as $0.87, sending a shudder through digital assets. However, recovery ensued — at press time, USDC is back at $1, according to CoinGecko, and its market cap has shed around $4 billion, dropping below $40 billion.

The price rebounded after Circle Internet Financial Ltd. pledged to cover any shortfall in $3.3 billion reserves held at SVB. However, the share of the USDC cash reserves parked at the bank is unknown. The company only acknowledged that "Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash."

Dante Disparte, Circle's Chief Strategy Officer, described the collapse as a "black swan failure" in the US financial system, warning of "broader implications for business, banking, and entrepreneurs" unless a federal rescue plan was implemented. The company has also reiterated that USDC is fully backed by cash and US Treasuries.

Confidence in the outcome

Insured deposits of up to $250,000 (the Federal Deposit Insurance Corp.'s protected limit) became available on Monday. Financial regulators are determined to make a share of the uninsured deposits available through asset sales as soon as possible. According to Bloomberg, the initial figures discussed behind the scenes fall into a 30%-50% range.

Circle has expressed confidence in those efforts. While "SVB may not return 100% and that any return might take some time," the company will "stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary."

Interpreting the market plunge

Spencer Hallarn, a derivatives trader at GSR, has described the market reaction as a "two-sided flow in some just freaking out and wanting out of USDC." On the other hand, some crypto investors switched to USDT "as a temporary hiding place."

The USDC dip affected decentralized applications (Dapps), many of which rely on trading pairs involving the stablecoin. It also pushed other stablecoins, such as Dai (DAI) and Pax Dollar (PAX), closer to their pegs. As a result, the Dai community has suggested changing its dollar-pegging mechanism. Meanwhile, USDT has maintained the peg, as Tether has no SVB exposure.

Silicon Valley Bank shutdown shows banking, not crypto crisis

Last week, Silicon Valley Bank (SVB), a pillar for the US startup and VC community, collapsed in less than 48 hours. The closure came fast on the heels of Silvergate Bank’s voluntary liquidation, but its outcome is fundamentally different — the government has stepped in to take SVB over.

While both California-based banks faced similar scenarios, only SVB, whose ties to crypto are weaker, got federal assistance through the Federal Deposit Insurance Corp. (FDIC) receivership. Meanwhile, Silvergate Corp. announced that all deposits would be repaid.

Silvergate liquidation vs. Silicon Valley Bank shutdown

Silvergate was unequivocally focused on digital assets — along with the now-closed Signature Bank, it was one of the two primary lenders for the industry. It even ran a proprietary exchange network, SEN, facilitating off-blockchain money transfers between big investors and crypto exchanges like Gemini and Coinbase.

SVB was 20 times bigger, and its collapse was the second-biggest US banking failure after the Washington Mutual blow-up in 2008. A relatively conventional bank providing deposits and loans, it was also deeply tied to the tech industry. It served a lot of crypto startups and venture capitalists — almost half of US VC-backed startups held cash at SVB.

Both banks faced a surge in withdrawals, which led to the liquidation of securities held as reserves. Previously, the Fed's interest rate hikes had pushed the bond prices down, eating away at the value of the banks' portfolios. Massive write-downs ensued.

On Wednesday, March 8, SVB announced that it was selling a portion of its securities for a loss due to a surge in deposit withdrawals. As its attempts to shore up investor confidence failed, the scenario became a "self-fulfilling spiral," according to Charles Forelle, Wall Street Journal Financial Editor. The deposit flight accelerated the next day, partly as the community SVB served was tightly knit.

Problems with banking, not crypto

Fortune's Jeff John Roberts believes both failures stem from a conventional finance crisis rather than crypto volatility. The root cause is the "banks' large holdings of bonds and T-bills purchased during the environment of near-zero interest rates, and that they are now selling at a loss as customers pull their deposits."

Michael Barr, the Fed's Vice Chair for Supervision, has admitted the regulators' "very light-touch approach" to relatively small lenders like SI. With their balance sheets less policed, such banks get more freedom for innovating and exploring fintech opportunities.

Meanwhile, a few giants deemed systemically important have been obliged to "hold ever-larger amounts of capital aside — sometimes over the loud complaints of bankers — so that their health would be beyond reproach," according to Bloomberg.

Thus, the regulators may be misguided in their persistent vilification of cryptocurrencies. Crypto advocates, who have long warned against printing money amid near-zero interest, could interpret this crisis as validation of their stance.