Last Friday was a day of chaos in the crypto world. Rumors of a run on Silicon Valley Bank (SVB) led to a sharp drop in cryptocurrency prices, with Bitcoin falling from $46,000 to $42,000 in a matter of hours. The situation worsened when California regulators announced that they had shut down SVB, causing widespread panic about contagion and a run on the banks.
As fears mounted, stablecoin USDC, which is issued by Circle and had significant funds with SVB, de-pegged and fell to $0.87 before rebounding to ~$0.92 on Saturday. Stablecoins are not supposed to behave this way, and the situation raised questions about the stability of the crypto market.
By Saturday morning, the situation had somewhat stabilized amidst increasing calls for the Federal government to guarantee deposits at SVB. Ethereum rebounded from lows around $1,375 to $1,430 and stabilized around $1,470 on Saturday evening. However, the Fed’s announcement on Sunday that it would cover 100% of SVB deposits and depositors would have access to funds on Monday had broader implications for the crypto industry.
The closure of SVB, which was one of the primary crypto-friendly banks, had significant implications for the industry. However, the closure of Signature Bank, which was the last standing crypto-friendly bank, had even more profound implications. Some observers believe that the Fed’s announcement could be the final straw that rips the bandaid off reliance on banks once and for all, leading to a self-banking movement within the crypto industry.
The closure of SVB and Signature Bank and the Fed’s announcement to guarantee deposits have significant implications for the crypto industry. While some believe that this could be the beginning of a self-banking movement within the industry, others are concerned about the broader implications of relying on traditional finance. The situation has also impacted the NFT market, with mid-tier PFPs taking a hit, but more established projects like CryptoPunks seeing a boost in demand.