The collapse of Silicon Valley Bank (SVB) caused stablecoin prices to swing wildly and Ethereum gas fees to soar, shaking the cryptocurrency market and raising concerns about its stability.
Stablecoin Prices Swing Wildly
On March 11th, the cryptocurrency market was thrown into turmoil after the collapse of Silicon Valley Bank (SVB).
This is the second crypto-linked bank to fail in the past week. Shortly after the bank’s collapse, Treasury Secretary Janet Yellen convened with top financial regulators to discuss the situation. The incident has raised concerns about the stability of the cryptocurrency market, which lacks a central bank like the Federal Reserve that can bail out the industry.
The failure of SVB caused some of the industry’s core plumbing to malfunction. Stablecoin prices became highly volatile, and Ethereum gas fees soared as investors scrambled to move their money around.
Circle’s USDC stablecoin, which is usually pegged at $1, sank to $0.89. The USDC/USDT pair, which tracks Circle’s coin versus the bigger one issued by Tether, fell as low as $0.89 on the Kraken exchange at 03:49 UTC on Saturday. This is far lower than it has ever been, even during the market stresses that followed the FTX debacle in November.
Stablecoins derive their value from the reserves backing them. SVB confirmed that about $3.3 billion of the reserves backing the world’s second-largest stablecoin were tied up at the failed bank. As a result, USDC’s market capitalization has slumped below $40 billion.
Gas fees, which measures how much it costs to complete an on-chain transaction, also surged. For Ethereum, the median gas fee jumped as high as about 231 gwei, versus the roughly 20-to-40 range seen earlier Friday, according to Nansen.ai.
The collapse of SVB raises the question of who will step in if any other banks or financial institutions linked to crypto collapse. The repercussions are unclear if SVB customers, including Circle and its USDC stablecoin, are forced to take a haircut on their money. This event has echoed the 2008 global financial crisis, where bad news was followed by even worse news.
What is Circle:
Circle describes itself as a a global financial technology company helping money move at internet speed. Our mission is to raise global economic prosperity through the frictionless exchange of value.
Source : bsc.news
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