The collapse of three top US crypto-friendly banks have stirred reactions in the crypto community as some top players like Coinbase consider adding banking feature to their services. One of the banks to fall into the death trap is Silicon Valley Bank after an overwhelming run that left it unable to redeem customers’ withdrawal requests.
Then on March 12, the Signature bank closed shop, further exacerbating the issues. Amid the fiasco, Coinbase CEO Brian Armstrong tweeted that adding a banking feature was previously on his exchange’s agenda.
USDC Rebounds From Brief Depeg While Coinbase Considers A Bypass From Mainstream Banking
However, USDC has recovered from the shock impact, with its dollar peg climbing back to its original $1 mark. This rebound happened after Circle CEO Jeremy Allaire announced that USDC reserves were safe and Circle got a new banking partner.
More so, the US Federal Reserve’s newly announced $25 billion funding program to support banks like SVB battling liquidity issues could be partly responsible for USDC’s recovery.
Due to the recent crisis, Coinbase Chief Brain Amstrong tweeted on March 13 in response to a crypto community member’s suggestion of a neo-bank service. According to Armstrong, Coinbase had previously considered adding features to compensate for the failure of the traditional banking system. He noted that, given recent issues, non-fractional reserve banking would be preferable.
Meanwhile, Coinbase held around $240 million at Signature Bank. However, it expects to recover its funds from the troubled bank.
Crypto Community Reacts To US Bank Implosions
The recent collapse of the top crypto-friendly banks, Silvergate, Signature, and Silicon Valley Bank, stirred bearish sentiments among the community. The troubled banks were among the few that supported cryptocurrency services.
The collapse of Silicon Valley Bank (SVB), which served several startups, including crypto firms, became evident after US authorities took possession of the bank on Friday, March 10. The regulatory action against SVB came after the bank could no longer meet withdrawal requests as anxious customers rushed to pull their funds. All these resulted from rumors about SVB’s liquidity crunch and failure to raise fresh capital.
Silicon Valley Bank’s collapse represents the second-largest financial failure of a retail bank, in the US, since 2008. Signature Bank, another crypto-friendly bank, met a similar demise. The incident caused the New York Department of Financial Services to take over the bank to avoid further runs as customers trooped to withdraw their funds.
The ripple effect from the banks’ collapse has begun spreading across the crypto industry, with some stablecoin dancing to the depressing tune. USDC felt the impact, with a 10% price decline on Saturday, March 12, shortly after its issuer, Circle, revealed its reserves stuck on SVB.
On March 9, Circle tried removing its funds from SVB as the bank was about to shut its operations. But on March 11, the stablecoin issuer confirmed that it could not fully process the fund withdrawal and still has $3.3 billion of USDC reserves locked in Silicon Valley Bank. Circle also has some undisclosed funds stuck on Silvergate.
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