Bank Failures, USDC Crash, and the Cryptocurrency Market

With Efe Bulduk, we round up the collapse of US banking firm Silicon Valley Bank, the collapse of stablecoin service USDC, and the burgeoning cryptocurrency market.

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The move to sharply combat inflation in the United States led to gains. The U.S., which has long been rising regularly, has yet to sign a deal to significantly reduce inflation. Moreover, this situation has fueled recession fears in global markets. In fact, the first product of fear had a bomb effect on the agenda. One of the most important banks in the United States, Silicon Valley Bank, went bankrupt. The bankruptcy also caused a $3.3 billion loss to Circle, the parent company of the stablecoin service USDC, and the collapse of traditional finance spread to the cryptocurrency industry.

The collapse of the US regulated bank Silicon Valley Bank

U.S.-based Silicon Valley Bank stands out for its oversight as a bank favored by more venture capitalists. The bank’s largest funds are venture capital (VC) and start-ups. These organizations stand out as companies that grow with the investment money they raise or the support they receive. Therefore, they hold a large stake in Silicon Valley Bank.

Of the Silicon Valley Bank funding, a16z invested $2.85 billion, Paradigm $1.72 billion and Pantera Capital $560 million, according to several published documents. Efe Bulduk, who has written a detailed report on the subject, says Silicon Valley Bank has $186 billion in assets. Bulduk also said the bank has $190 billion in debt.

As Coinkolik, we worked with Efe Bulduk to assess the collapse of Silicon Valley Bank, its spillover effects on decentralized financial products, and how this crash affected its stablecoins, specifically USDC.

Why did the collapse of traditional finance affect decentralized financial products? What role does the circle play here?

While the cryptocurrency market stands out as the golden jewel of the Crypto age for its decentralized lingo, it is somewhat on par with traditional financial products. Therefore, rising US, recession fears, various bankruptcies and crashes can also affect the cryptocurrency market.

We asked Efe Bulduk why decentralized financial products would be affected by the collapse of traditional finance, and what role the USDC issuer Circle plays here.

Referring to the cryptocurrency market, which is not independent of global finance, Bulduk said that there was the second largest bank failure after Lehman Brothers. The occurrence of this has caused big investors, corporate companies and big players to go into “risk-off” mode. According to Bulduk, these players attempted to hedge their positions by closing their positions. On the other hand, this causes the price to drop.

bench run

Silicon Valley Bank serves as Circle’s reserve bank. This situation is one of the biggest reasons Circle can’t keep its $3.3 billion in assets in-house. We found that the exposure of Circle, the USDC issuer, to this situation could cause small investors to panic and exit the market. This view of Bulduk also reveals the decline in the cryptocurrency market and the outflow of stablecoins, as well as the reflection of the news flow on the agenda.

Efe Bulduk believes that with the collapse of Silicon Valley banks, venture capital and start-ups are holding bank assets as another reason for the decline in the cryptocurrency market. We found that these organizations could start selling cryptocurrencies to cover their operating expenses, referring to their money being stuck in the bank. These crypto sales can be tracked on-chain, a tracking feature that has led to selling pressure in the general cryptocurrency market, Bulduk said.

After cryptocurrency exchanges and stablecoins, what awaits us in the cryptocurrency market?

For almost a year now, the cryptocurrency industry has been rocked by negative news and negative developments. The $40 billion loss from the Terra crisis, the loss of trust from the FTX bankruptcy, and the turmoil from the collapse of a Silicon Valley bank have affected the entire cryptocurrency industry.

The many negative events that occur almost every month have also mobilized regulators in various countries. In particular, U.S. regulators have begun to exert intense pressure on cryptocurrency exchanges and DeFi projects. FTX’s legal proceedings are ongoing, Bitzlato is facing money laundering charges, Binance is going through various investigations, and finally the lawsuit against KuCoin is high on the agenda. These pressures intensified following FTX’s bankruptcy, leading the cryptocurrency exchange to exercise caution. Binance CEO Changpeng Zhao (CZ) started posting “4” almost every day.

The pressure on crypto exchanges is now starting to bounce on stablecoins. This is one of the recent stablecoin developments, with Paxos investigating BUSD and Binance being directly at the center of events and exposed to FUD. The development revealed a gloomy mood in the cryptocurrency market, which fell as the Fed priced in a rate hike. The final blow to the breathing crypto market came when USDC went depeg and dragged all stablecoins down.

Stablecoin market

U.S. dollar-based stablecoins that provide the exact usage of the U.S. dollar in the cryptocurrency market, all below $1 except for USDT.

Rising recession fears and determination to rise in the U.S. suggest a Silicon Valley Bank-style event could escalate. In this case, as Bulduk said, the collapse of traditional financial products and banks will also affect the cryptocurrency market in parallel. The financial products toppled by the domino effect behave in a uniform way, making no distinction between risky or risk-free assets. Losses suffered by investors holding bank funds could lead to mobilization of the cryptocurrency market by banking institutions.

Looking ahead, it is clear that more regulators will enter the industry as a result of these events. Bulduk said in his published report and in an interview with Coinkolik that the incidents were largely due to “bank runs.” Such situations are likely to come under scrutiny from regulators as they affect the entire market and frustrate investors.

We asked Efe Bulduk about the impact of all these processes on the cryptocurrency market. We found that the United States has begun a “witch hunt” against cryptocurrencies. Bulduk emphasized that with the bankruptcy of FTX, all perceptions of the cryptocurrency industry have changed. Citing this, Bulduk said FTX was a funder of US elections. The fact that Sam Bankman-Fried later used the term theft as a crime and the fact that American athletes and prominent economists were involved in these processes led to the US turning to cryptocurrencies. Bulduk said US regulators would prefer to blow up Silvergate and Signature Bank. We found that the FDIC, DoJ, NEC, OCC, Fed, and White House indicated that coordination pressure had developed.

These pressures will continue, Burduk said;

“This repressive practice of banks better not offering cryptocurrency services will continue until the law is passed. They want to put pressure on this place. Silicon Valley Bank has sunk, Signature Bank may well follow. This is a very Planned and planned progress. Here, Lael Brainard and Elizabeth Warren will continue to squeeze these markets until cryptocurrencies are regulated. Stablecoin regulation will most likely be a regulatory priority. Because they will make it their own way CBDC. They did a complete scissors split, they gave no such signal. They seem to keep up with the rest of the world. Maybe in the meantime, they can file regulations for cryptocurrencies (other than Bitcoin) to the CFTC or SEC. That’s how it’s going to be regulated. And then the DAO will be regulated. It looks like the pressure will continue on the US side until that happens.”

Efe Bulduk: They are everywhere, including dollars

After Efe Bulduk introduced that stablecoins can see priority supervision, he also talked about the progress of stablecoins such as USDC and BUSD. We find that we see as much stress and price volatility as possible before regulation on stablecoins.

U.S. regulators are signaling to Binance by making BUSD the main target of the Paxos investigation, Bulduk said. Bulduk pointed out that USDC has seen a fresh rise, they can’t do anything about Tether (USDT), but they will interfere with everything that goes into the US dollar. Specifically, we found, he said;

“Integrated first…they’re integrating now. First they blocked BUSD, now they’re going USDC. So the dollar is closed in USDT. The U.S. can somehow touch anything put into the dollar. So, it The goal is to tighten and weaken stablecoins as much as possible before regulation arrives.”

We found that if cryptocurrencies were here to stay, the people writing the stories here would want the US to be more dominant. However, he stated that if the cryptocurrency is not left behind, they will deal with it with a “thank you” logic.

Information source: compiled by 0x information from COINKOLIK.Copyright belongs to the author, without permission, may not be reproduced

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