The sudden collapse of Silicon Valley Bank on Friday set off panic across the technology industry. But crypto executives and investors – who have endured a year of near-constant upheaval – seized on the moment to preach and scold, The New York Times reported.
Centralized banking was to blame, the crypto advocates said. Their vision of an alternative financial system, unmoored from big banks and other gatekeepers, was better. They argued that the government regulators that recently cracked down on crypto firms had sown the seeds of the bank’s implosion.
“Fiat is fragile,” wrote the Bitcoin advocate Erik Voorhees, using a common shorthand for traditional currencies.
“We’re seeing glitches in the machine,” said Mo Sheikh, chief executive of the crypto company Aptos Labs. “This is an opportunity to take a breath and consider the practicalities of decentralization.”
And the finger-pointing went in both directions. Some tech investors argued that the crypto world’s procession of bad actors and overnight collapses had conditioned people to panic at the first sign of trouble, setting the stage of the crisis at Silicon Valley Bank. In November, FTX, the crypto exchange run by Sam Bankman-Fried, went out of business after the crypto equivalent of a bank run exposed an enormous hole in its accounts.
“People are just traumatized. They’re financially shellshocked,” said Sam Kazemian, the founder of the crypto project Frax. “As soon as you see something, you wonder if there’s a fire over there because it smells like smoke. And then you can treat it like everything is burning and get out while you still can.”
CNBC reported that the U.S. cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning after the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.
USDC is known as a stable coin, which means the value of the virtual currency is supposed to be pegged to a reference currency. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to CoinDesk.
In a tweet Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the continuity of the bank and said it will follow guidance from regulators.
THE BLOCK reported that crypto lender BlockFi has $227 million in “unprotected” funds in Silicon Valley Bank, according to a bankruptcy document, and may be in violation of U.S. bankruptcy law.
That $227 million is also not insured by the Federal Deposit Insurance Corporation since it is in a money market mutual fund, the U.S. Trustee overseeing BlockFi’s Chapter 11 bankruptcy case said in the filing. The standard deposit insurance amount is $250,000 per depositor, per insured bank for each account ownership category, according to the FDIC’s website.
THE BLOCK also reported that Circle, the crypto payments firm behind stablecoin USDC, confirmed late Friday evening that $3.3 billion of the cash backing its coin remain left with Silicon Valley Bank.
Circle, which had early tweeted that Silicon Valley Bank was among its six banking partners managing about 25% of the total reserves of USDC, was criticized by Crypto Twitter for not being more transparent about its exposure to the popular tech banker. In the wake of the original tweet, USDC de-pegged from $1, falling around 2% on certain decentralized finance platforms.
In my opinion, the collapse of SVB appears to have hit several cryptocurrency companies really hard. This was not something that occurred in the 2008 bank collapse, because cryptocurrency did not exist back then.