Silicon Valley Bank Crisis Causes USDC to Depeg From the US Dollar

2023/03/14 06:17:12

The last week was brutal for crypto bulls as contagion from the Silvergate saga, Signature, and Silicon Valley Bank spread across the cryptocurrency market. The first two are the most crypto-friendly banks, while SVB was a haven for venture capitalist funds and startup money.

Bitcoin, the crypto market leader, dropped to $19,571 as stablecoins with failed bank exposure depegged.

However, things got back to normalcy as Bitcoin regained its $20,000 support, and Ethereum returned to $1,500 in the early hours of Saturday. These seemed to be the only "back to normal" as investors are still wary of less-known names.

Bitcoin Net Transfer Volume | Source: Glassnode

This weekend also saw the second most amount of Bitcoin withdrawn from exchanges this year at roughly 15,000 BTC. The perpetual funding rate is extremely negative, indicating that Bitcoin is being shorted aggressively by record amounts since the FTX collapse.

Bitcoin Futures Perpetual Funding Rate \ Source: Glassnode

Bitcoin’s ordinal inscriptions also briefly hit 400,000 daily inscriptions for the first time in the cryptocurrency’s history. This happened after the community found out that you could mint both NFT-like tokens, as well as fungible tokens, on the Bitcoin blockchain.

Bitcoin’s ordinal inscription \ Source: Dune Analytics

The total cryptocurrency market capitalization dipped below $920 billion for the first time since November, and between Friday and Sunday, more than $200 million worth of cryptocurrency-tracked futures were liquidated. Bitcoin futures worth nearly $60 million were liquidated, followed by ether futures worth $40 million.

The algorithmic stablecoin, DAI, depegged to $0.88, Tron’s USDD lost about 7%, and only Tether was left out of the bedlam of the stablecoin market. Tether’s exclusion was visible, as USDC/USDT featured among the most traded pairs on KuCoin in the previous week.

Top Altcoin Gainers and Losers

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Fear and Greed Index at 33, Market Gets Very Bearish

Following Silvergate’s folding, USDC’s depegging, and news of the many crypto companies involved, the crypto market turned bearish. This week also, President Biden proposed a 30% tax on crypto mining, something the market did not take very lightly.

Fear & Greed Index | Source: Alternative

This Week’s Crypto News Highlights

Major Crypto-Friendly US Banks Shuts Down

US banks experienced a bank run this past week. Silvergate, SVB, and Signature banks are the three banks to feel the heat of the Fed’s tightening policies.

Silvergate Capital Corporation, the parent company of the crypto-fiat gateway network for financial institutions, Silvergate, first announced plans to "voluntarily liquidate" assets and shut down operations.

Days later, Silicon Valley Bank, announced it was closing operations. One effect of this decision was an extraordinary depegging event of the USD Coin stablecoin, issued by Circle, which had over $3.3 billion of its $40 billion reserves stuck in the troubled bank. It has also been reported that Silicon Valley Bank holds an estimated $5 billion in funds for prominent blockchain venture capital firms such as Andreessen Horowitz, Pantera Capital, and Paradigm.

Both Silvergate and Silicon Valley Bank had huge run up from 2020, owing to the massive sprending spree during that period, but failure to back the deposits with government bonds which were incredibly cheap, at a 1% rate, proved costly.

The depegging event caused USDC to trade as low as $0.87 before slowly pegging to trade at $0.99 at the time of writing. There are reportedly many different paths to resolution in the works, and depositors are expected to receive all deposits today.

Sam Bankman-Fried Is Smarter than Bail Conditions, Says Judge

Former FTX founder Sam Bankman-Fried's proposed bail conditions were questioned by U.S. District Judge Lewis Kaplan, who suggested that Bankman-Fried could find ways to evade the proposed restrictions on electronic communication. Kaplan proposed that Bankman-Fried be limited to using a flip phone or other non-smartphone with either no internet capabilities or internet capabilities disabled.

Bankman-Fried's lawyer, Christian Everdell, assured the court that he would work with prosecutors on a new proposal to address the judge's concerns.

Bankman-Fried's fraud trial is scheduled for October 2, and three of his closest associates are providing assistance to prosecutors.

Biden Proposes 30% Tax on Crypto Mining Electricity Usage.

President Joe Biden's budget proposal includes a plan to impose a 30% tax on electricity costs for US crypto miners to "reduce mining activity." The tax would be phased in over three years, starting after Dec. 31, at a rate of 10% per year until it reaches the maximum 30% tax rate in the third year.

Any firm using resources, whether owned or rented, will be subject to the excise tax, and crypto miners will also have reporting requirements on the amount and type of electricity used, as well as the value of that electricity.

The Treasury Department claimed the energy consumption of crypto mining operations has negative environmental effects, increases prices for those sharing a grid with the operations, and creates uncertainty and risks for local utilities and communities.

Vitalik Dumps $700K Worth of Tokens

Ethereum co-founder, Vitalik Buterin, has sold almost $700,000 worth of tokens he had previously been airdropped in exchange for Ether. The tokens sold include 500 trillion SHIKOKU (SHIK), nearly 10 billion Cult DAO (CULT), and 50 billion Mops (MOPS).

Due to the low liquidity of these tokens, their prices were heavily affected by Buterin's sales. SHIK saw the largest price drop, with an 86% decrease following the sale (Buterin's wallet previously held 50% of the circulating supply of SHIK).

Vitalik’s crypto wallet | Source: Etherscan

Some cryptocurrency community members expressed frustration at Buterin's decision to sell, while others suggested that it may have been motivated by tax implications. This is not the first time Buterin is selling crypto holdings in bulk, having sold Shiba Inu and Dogelon Mars in a similar fashion two years ago.

Buterin had previously confirmed that he owned the wallet in a 2018 tweet following accusations of hoarding Ether with fellow Ethereum co-founder Joe Lubin.

Bitcoin (BTC/USDT) Technical Analysis

After probing the 19K area low, Bitcoin has pushed back to the previously-lost 20K area.

According to several analysts, Bitcoin has a new resistance level of $22,800, and the new support level is $20,500. Breaking the $22,800 price will see Bitcoin strive for $23,400, and if the $22,800 mark is broken, the next stop is $16,000.

The RSI is now sitting at 79, indicating an oversold level.

BTC/USDT Chart on the Hourly Timeframe | Source: KuCoin

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