March - Crypto news

After Rain Comes Sunshine... Or?

One cannot deny that the crypto spring of 2023 begins on very shaky legs. We have already seen the second and third largest bank failures in U.S. history as the crypto-friendly banks Signature Bank and SVB Financial Group's Silicon Valley Bank crashed and were shut down or taken over by American authorities. Silvergate Capital Corp is also on the list of recent failures of crypto-friendly banks that have been shut down in the wake of the FTX scandal, creating a highly volatile market where USDC also lost its peg to the dollar and temporarily dropped to $0.9. It is not just USDC that is having problems right now; the giant Binance is also having trouble with its stablecoin BUSD.

Silvergate Capital has several of the crypto world's major giants as customers, including Coinbase and Paxos, and their specialty has been fiat on and off ramps 24/7 for cryptocurrency exchanges and similar organizations. In the wake of a sluggish market, deposits have decreased from nearly $12 billion to today's $3.8 billion, and their classic bank run came in the aftermath of the FTX collapse and a weak market, causing the bank's customers to withdraw about $8.1 billion from their accounts over a short period, in turn causing significant liquidity problems for Silvergate, which was forced to sell off large parts of its assets. The bank also halted plans for its own cryptocurrency and payment system while firing 30% of its workforce to begin compensating for the losses.

Silicon Valley Bank is one of the banks that, among others, the pension fund Alecta has been a major investor in for several years, and in turn, they expect to have lost a total of SEK 12 billion on these bank collapses. SVB was a bank that focused mainly on IT/tech companies and startups and was therefore heavily affected when the entire tech industry experienced a significant drop in share value. Moreover, they had invested several billion USD in government bonds for a number of years before the FED aggressively changed interest rates to combat today's inflation, leading to another so-called bank run where a majority of customers wanted to move their assets from the bank. SVB, therefore, had to sell off its assets at a loss, which in this case are government bonds, to avoid a liquidity crisis as they were underinsured against their customers' liquidity.

Similarly, with SVB's underinsured approach to its customers' liquid assets, we find Signature Bank, which was taken over by American authorities in New York a few days ago. They experienced a sharp decline in their share value as savers fled the field with their assets when problems with SVB created significant concern among banks that expose themselves to, among other things, crypto.

Stablecoins continue to experience some problems, USDC, which originates from the company Circle, had a total of $3.8 billion in storage at Silicon Valley Bank as backing for its stablecoin, also experienced some market anxiety as they lost their peg to the dollar and dropped to just below $0.9 for a short period but has since recovered and is more or less fully restored.

BUSD

The crypto world's major giant, Binance, has also tasted the pressure from American authorities in the wake of the FTX debacle as the New York State Department of Financial Services has forced the company Paxos to cease the creation of Binance stablecoin BUSD. In addition to this, Paxos will also terminate its collaboration with Binance, but they gave no direct explanations for their actions, while Binance points out that BUSD is owned and managed by Paxos only, which uses the name Binance under a licensed form for BUSD. Investors obviously did not feel safer by this and withdrew nearly $900 million from the platform, which can be classified as one of the largest withdrawals from Binance ever in a single day.

The unrest has also prompted Coinbase to halt trading in BUSD until further notice, and the company refers to BUSD not meeting the standards Coinbase uses to ensure quality on its platform. A positive aspect in this situation for savers in Bitcoin is that the outflow of BUSD went towards purchasing BTC, which, combined with a liquidation of so-called "shorts," gave the Bitcoin price a small boost up to almost $26,000. This is a relief considering recent turmoil, and we keep our fingers crossed and hope to soon see the light at the end of the tunnel as spring arrives.