Is collapse of three US lenders a blessing or curse for Bitcoin, other crypto?

Is collapse of three US lenders a blessing or curse for Bitcoin, other crypto?


when the BLS collapsed, Punit Agarwal, founder of KoinX, cited that it not only caused tremors in the tech industry, but the crypto markets felt its effect alike. USDC (a stablecoin), for example, lost its $1 peg and plunged straight to $0.89.

KoinX added that crypto companies like Circle (the USDC issuer) found themselves unreachable for the $3.3 billion it held in SVB. In the same way, cryptocurrency holders trying to convert their USDC into other stablecoins are also using the Ethereum network excessively at the moment, which has led to the gas fee going up a lot.

Yesterday, a Reuters report said Circle pulled around $3bn from its general reserves at SVB.

Right after SVB came to the end of the world, one of the largest USDC traders, Circle, announced that it had $3.3 billion in reserves backing the token that was stored in the bank.

Some of the top cryptocurrency names that stood out to weather the fallout impact from US banks include Coinbase Global Inc. and Paxos Inc.

Agarwal believes that the future of SVB is not certain at the moment, its collapse has still had a negative impact on the crypto market.

Another lender, Signature Bank, is said to be one of the largest cryptocurrency lenders.

As of March 8, Bloomberg previously reported that Signature had begun pulling out of digital assets in the wake of the FTX exchange explosion, but still had $16.5 billion in crypto-related customer deposits. Additionally, both Signature and Silvergate enabled fast payments between clients such as hedge funds and exchanges, supporting the liquidity of digital assets.

Giving a rundown on SVB, Silvergate, and Signature Bank, Rajagopal Menon, vice president at WazirX, said that these banks “are known to have significant exposure to cryptocurrencies.”

Menon explained further:

– Silicon Valley Bank (SVB) is a major bank in the United States that focuses on technology and innovation-based businesses, including various cryptocurrency startups. SVB is a pioneer in the crypto space, offering services such as custody and lending of cryptocurrencies.

– Silvergate Bank is known for offering banking services to the crypto industry. Silvergate created a platform that allows cryptocurrency exchanges and other businesses to hold deposits in multiple cryptocurrencies that could be used to facilitate transactions and other activities.

– Signature Bank is another bank that has aggressively served the crypto industry. Signet, the bank’s blockchain-based payments platform, allows users to move funds immediately and without incurring fees.

According to the vice president of WazirX, the exposure of these banks to cryptocurrencies can affect both cryptocurrency companies and investors. Access to banking services from SVB, Silvergate and Signature Bank is essential for crypto businesses. These banks can provide the necessary infrastructure for cryptocurrency-related businesses, including access to capital, custody services, and payment processing.

For investors, Menon said, “the exposure of these institutions to cryptocurrencies demonstrated the credibility and potential of the cryptocurrency market. It may also allow investors to indirectly invest in the cryptocurrency business by investing in these institutions.”

Interestingly, Dileep Seinberg, founder and CEO of MuffinPay, believes that the fallout from these banks is a boon for Bitcoin and other cryptocurrencies.

Seinberg said that the fallout from tech lender Silicon Valley Bank is a boon for Bitcoin and cryptocurrencies, as the event has drawn parallels to the 2013 Cyprus Crisis that highlighted flaws in the fractional reserve system and put decentralized banking. under the spotlight. In such cases, there are no depositors, only lenders, and this removes billions of dollars from the economy.

In a fractional-reserve banking system, Seinberg noted, a lender is required to hold only a small portion of deposits that are available for withdrawal, while the remaining funds are lent out for economic activities and banks earn interest on them. Lenders believe that the withdrawal amount will not exceed the threshold limit and if this happens, customer confidence is affected and this leads to large withdrawals from the bank and ultimately chokes liquidity.

Therefore, Seinberg believes that the US Federal Reserve intervention has stabilized a number of dollar-pegged stablecoins, which had previously been unpegged amid weak market sentiment. The historic failure of the 16th largest bank in the US is a big dent, but for cryptocurrency fans, it’s a real-time announcement of self-custodial assets like Bitcoin.

“We believe it is a banking crisis and not a crypto crisis. The whole episode is a testament that customer funds are not as safe in regulated banks as they are led to believe,” Seinberg added.

Furthermore, the KoinX founder believes that over time, it looks like we will be able to gradually recover from this as well.

On Friday, the crypto market recouped some of its previous losses with Bitcoin crossing the 26,000 mark.

On CoinMarketCap, at the time of writing, the global crypto market capitalization was trading at $1.14 trillion, rising 5.4% over the past day.

Bitcoin is up almost 7% and traded near the $26,700 mark. Bitcoin has touched levels above $26,800 in early trading. The crypto market leader has now posted weekly gains of almost 36%.

Meanwhile, Ethereum was up almost 5% on Friday, with BNB also up more than 5%. XRP, Cardano, Polygon and Dogecoin were also up 3-7%.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of the Mint. We advise investors to consult with certified experts before making any investment decision.

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