This week saw the shutdown of Silicon Valley Bank (SVB), one of the largest banks in the United States that provides banking services to crypto-friendly venture companies, such as Sequoia Capital and Andreessen Horowitz, after it announced a significant sale of assets and stocks aimed at raising additional capital. The California financial watchdog appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits, but the FDIC only insures up to $250,000 per depositor, per institution and per ownership category. The bank held over $5 billion in funds from major venture capital firms. The USDC depegged from the US dollar as a consequence, with major stablecoin DAI, USDD and FRAX also depegging from the US dollar. Circle, which issued the USDC, confirmed that $3.3 billion of its $40 billion USDC reserves remain at SVB, triggering the sell-off that resulted in the stablecoin falling below $1. Circle plans to cover the missing liquidity in SVB with corporate funds. The stablecoin ecosystem felt an immediate impact as the USDC price slowly re-pegged on late Saturday after turbulent trading hours.
Silvergate Capital Corporation, one of the major banking partners for many crypto firms, announced this week its plans to “wind down operations” and liquidate its crypto arm, Silvergate Bank, in light of recent industry and regulatory developments. The closure of the bank does not appear to be a systematic risk for the United States banking system, but crypto firms are bracing for the potential effects of its exit, such as an increase in banking concentration and challenges for crypto venture capital firms in the US.
The defense lawyers representing FTX founder Sam Bankman-Fried have flagged that it may be necessary to delay his criminal trial, since the defense is still waiting for a “substantial portion” of evidence and more charges have been brought against Bankman-Fried in late February. Meanwhile, law firms, investment banks, and consulting companies working with FTX on its bankruptcy case billed the crypto exchange a combined $34.18 million in January, according to court documents. FTX’s chief restructuring officer and new CEO, John J. Ray III, also received a hefty pay package, charging $1,300 an hour, amounting to a total of $305,000 in February.
President Joe Biden’s budget proposal this week could have significant implications for crypto miners, as the proposal suggests a 30% tax on electricity costs for any firm using resources to mine digital assets, whether they be owned or rented. The budget also includes ending tax-loss harvesting and nearly doubling tax rates on capital gains for some investors to 39.6% on long-term investments, up from the current 20% tax rate.
In other news, distributed ledger Hedera confirmed that a smart contract exploit on the Hedera mainnet led to the theft of several liquidity pool tokens. The stolen tokens were liquidity pool tokens on decentralized exchanges that derived their code from Uniswap V2 on Ethereum, which was ported over for use on the Hedera Token Service. Meanwhile, Tether has rebuffed reports claiming it had ties to entities that faked documents and used shell companies for access to the banking system. New York Attorney General Letitia James has filed a lawsuit against cryptocurrency exchange KuCoin after she was able to buy and sell crypto on the exchange, which is not registered in New York.
Bitcoin (BTC) is at $19,920, Ether (ETH) at $0.000 and XRP at $0.35. The total market cap is at $928.9 billion. Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Kava (KAVA) at 12.40%, Bone ShibaSwap (BONE) at 1.22%, and UNUS SED LEO (LEO) at 1.05%. The top three altcoin losers of the week are Stacks (STX) at -31.05%, Mina (MINA) at -29.40%, and SingularityNET (AGIX) at -29.14%.
In a week of industry and regulatory turmoil, the cryptocurrency market has been thrown into chaos as stablecoins depeg from the US dollar and major banks shut down. However, despite the volatile crypto landscape, consumers didn’t lose faith in their crypto investments, according to Paxos’ Annual Survey. While it may be a bumpy ride, cryptocurrency still has long-term promise as a more equitable and accessible financial system.
