Weekly Recap: Silvergate Liquidated, Silicon Valley Bank Placed in Receivership, Cryptocurrency Sold
This past week was mainly bearish as several macro events had a detrimental effect on the industry. Major developments, such as the voluntary liquidation of Silvergate and the collapse of Silicon Valley Bank (SVB), have disrupted the industry, prompting a sell-off that has pushed asset prices to multi-month lows. In addition, regulatory efforts in the United States have been mostly unfavorable, exacerbating concerns and uncertainties.
Voluntary liquidation of Silvergate
Two weeks ago, concerns about Silvergate’s stability mounted after the bank delayed its $10,000 annual filing with the US Securities and Exchange Commission (SEC). The decision raised concerns about the possibility of bankruptcy and its potential impact on cryptocurrencies.
The Silvergate saga spilled over into the past week, and brought new developments with it. With the bank’s troubles continuing amid disclosures on its underperforming stocks and mass withdrawals, bankruptcy fears have risen as of last week.
After these events, additional reports emerged indicating that Silvergate Capital, Silvergate’s parent company, had entered into discussions with the US Federal Deposit Insurance Commission (FDIC) to chart a course through the current turmoil. Anonymous sources revealed that securing investments from major market players was one of the potential options under study.
However, on March 10, Silvergate Capital issued a public statement indicating its intention to cease operations and voluntarily liquidate the bank’s assets in their best interest. After that, Silvergate stock fell 43% in after-hours trading.
In the aftermath of these events, cryptocurrency exchanges Binance and Coinbase disclosed that they had informed the community that they had no exposure to Silvergate. Meanwhile, speculation arose as to the real catalyst for the bank’s collapse. Industry insiders suggest that government regulatory initiatives may have contributed.
Regulatory uncertainty is spreading in the United States
The regulatory climate in the domestic crypto industry within the US remains a concern among leaders. The events of the past week have exacerbated these concerns despite the emergence of potentially favorable discussions.
Ethereum (ETH): a security or a commodity?
New York Attorney General Letitia James revealed on March 9 that KuCoin, a crypto exchange, has been sued for offering security investments to New Yorkers without complying with state registration requirements.
According to Attorney General James, assets like ETH are actually securities along with terraUSD (UST) and terra (LUNA). It revealed plans to intensify regulatory efforts to crack down on exchanges that constantly violate financial laws and put investors at risk.
Attorney General James’ position on whether ETH should be classified as a security or a commodity could serve as a precedent that US financial agencies may use to take action against local cryptocurrency exchanges that list the currency.
Gary Gensler, Chairman of the Securities and Exchange Commission, has suggested on multiple occasions that assets that use the Proof of Stake consensus mechanism are securities. However, ETH is not explicitly designated as such. In a recent statement, he hinted that every crypto asset, except bitcoin (BTC), should be treated as collateral, a view supported by most bitcoin extremists.
However, during a Senate hearing on March 8, CFTC chair Rustin Behnam reiterated his position that ETH and all stablecoins are commodities, not securities. As such, Behnam believes these assets fall under his agency’s jurisdiction.
Other regulatory affairs
The US regulatory landscape also welcomed other new developments last week. According to reports last Tuesday, the country’s policymakers, led by Patrick McHenry, chairman of the House Financial Services Committee, and Representative Richie Torres, are seeking to reintroduce legislation to clarify the reporting.
Coinbase CEO Brian Armstrong expressed his approval of the bill introduced by McHenry and Torres and commended the representatives for their work in promoting regulatory transparency. He believes the legislation will be instrumental in preserving the United States’ position as a hub for cryptocurrency innovation, especially in the face of unfavorable legislative measures that threaten the industry’s survival.
Meanwhile, South Dakota Gov. Kristi Noem has opposed House Bill 1193, which seeks to exclude bitcoin and other crypto assets from the definition of money. Noem pointed to a possible loophole in the bill that could enable the government to sideline cryptocurrencies and position central bank currencies as the only viable digital asset.
The Biden administration has also introduced an idea of a 30% tax on crypto miners in the country. The proposal, laid out in the Biden administration’s fiscal year 2024 budget, would require cryptocurrency miners to pay a 30% tax on electricity use. The idea has received widespread backlash within the crypto community.
Silicon Valley bank collapse and infection
Silicon Valley Bank (SVB), one of the largest US banks by assets, plunged last week, causing jitters across markets that affected crypto companies with exposure to the lender.
The bank’s rapid downturn occurred over a brief two-day period, kicked off by revelations that it planned to raise $2.25 billion from investors to address a significant shortfall on its balance sheets. This announcement prompted the startup’s clients to withdraw their assets as a precaution against the bank’s potential exposure in the event of a collapse.
The influx of banks led to a liquidity crisis. Silicon Valley Bank revealed that it sold the bonds at a significant loss of $1.8 billion due to the repeated interest rate increases implemented by the Federal Reserve. SVB clients are primarily high-profile venture capital-backed technology companies and technology industry professionals.
The fallout from these events hurt the stock market, as shock waves were also felt in the cryptocurrency industry. California regulators were forced to close the bank on March 10, with the Federal Deposit Insurance Corporation (FDIC) designated as the recipient to handle the disposal of the bank’s assets.
Circle and BlockFi are exposed to SVB
The day after the SVB crash, USDC stablecoin issuer Circle revealed its exposure to the beleaguered bank. According to a March 11 tweet, the department revealed that $3.3 billion of its $40 billion reserves were held in a Silicon Valley bank and are now inaccessible.
Panic has gripped the cryptocurrency scene, as some USDC holders scramble to convert their USDC tokens to other stablecoins. However, two of the largest cryptocurrency exchanges, Binance and Coinbase, have suspended USDC transfers. Binance has suspended automatic conversion of USDC to BUSD, while Coinbase has announced that it will temporarily suspend conversion of USDC to USD. Robinhood has also reportedly suspended USDC deposits and withdrawals.
As these events unfolded, the value of the US dollar decoupled, dropping to $0.87 on Saturday morning. Since then, the asset has made a comeback, up 4.42% over the past 24 hours. However, it has yet to achieve parity with the dollar, as it is currently trading for $0.95 at the time of writing.
Meanwhile, bankrupt cryptocurrency lender BlockFi revealed in its bankruptcy filing last Friday that it has $227 million to offer to a Silicon Valley bank. The documents revealed that BlockFi’s exposure is also not insured by the FDIC nor is it covered by any other financial agency.
As chaos from Silvergate and Silicon Valley banks wreaked havoc, the broader cryptocurrency market recorded a massive drop in the total cryptocurrency market cap below the $1 trillion mark for the first time since January.
The situation was exacerbated by significant selling pressure from bitcoin miners who began liquidating their holdings. According to a report by CryptoQuant on March 9, bitcoin miner reserves have reached their lowest levels since October 2022. This has added to already difficult market conditions, exacerbating the impact on the cryptocurrency market.
As a result, the bitcoin price fell below $20,000 on March 10, marking the first time the asset has traded below $20,000 since mid-January. Other assets also saw similar declines, falling to lows last seen in January. Despite the difficulty of regaining the $20,000 region, bitcoin closed the week down by 8.4%. Furthermore, Ethereum ended the week down 6%.
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