USDC Stablecoin and Crypto Market Go Haywire After Silicon Valley Bank Collapses

The crisis surrounding cryptocurrencies kicked into high gear early on Saturday morning after the collapse of Silicon Valley Bank (SVB), which caused some of the industry’s fundamental infrastructure to malfunction.

As investors hurried to shift money around in the hours after regulators shut down SVB in response to a run on the bank, which had ties to cryptocurrency, prices of stablecoins rapidly fluctuated, and gas fees skyrocketed. It was the second failure of a bank with cryptocurrency ties to occur this week.

Janet Yellen, the Secretary of the Treasury, called a meeting of the highest-ranking financial authorities after the failure of SVB to discuss the aftermath. The cryptocurrency markets began to experience chaos not long after, indicating that the bear market that has been going on for more than a year has reached an even more negative phase.

There are parallels of the global financial crisis that occurred in 2008, when bad news was continually followed by news that was considerably worse. Yet, given that the cryptocurrency business does not have a central bank comparable to the Federal Reserve that can rescue it in a crisis, the question of how it will end remains unanswered.

A terrifying turn of events occurred with a product that was intended to provide a secure location for investors to save their money. The USDC stablecoin, issued by Circle Internet Finance, drastically depegged from its planned price of $1. On the Kraken exchange at 03:49 UTC on Saturday, the USDC/USDT pair (which tracks Circle’s coin vs the larger one produced by Tether) reached a low of $0.89, which is significantly lower than it ever dropped during the market strains that followed the FTX crisis in November.

Late on Friday night, the financial services company that provided the confirmation stated that around $3.3 billion of the reserves supporting the world’s second-largest stablecoin were held at SVB.