The stunning downfall of Silicon Valley Bank (SVB) has reverberated across the cryptocurrency landscape, triggering a dramatic drop in prices and a surge in gas fees. As a result, Circle Internet Financial’s USDC stablecoin, which is supposed to be pegged to the US dollar at a value of $1, is massively depegged, sinking $0.89 on the Kraken exchange. This is a major blow to investors who had used the stablecoin as a haven to park their money, media reports said.
USDC’s detachment from its peg can be attributed to the fact that approximately $3.3 billion worth of the reserves that supported it were held up at SVB. Given that stablecoins derive their value from the reserves, the failure of SVB has resulted in a decline in USDC’s market capitalization, which has now fallen below $40 billion. This has caused investors to shift their money away from USDC, leading to a spike in USDT’s price to $1.06 on Kraken versus the US dollar, a level it rarely hits.
The cost of on-chain transactions, represented by gas fees, has experienced a dramatic surge in light of the SVB collapse. Specifically, Ethereum’s median gas fee, which was observed to be within a range of 20-to-40 on Friday, skyrocketed to around 231 gwei, as reported by Nansen.ai. This is a major concern for investors now paying more to complete their transactions.
The collapse of SVB has led to fears that the cryptocurrency market may be entering a dark phase, similar to the 2008 global financial crisis. However, unlike traditional financial markets, the cryptocurrency market lacks a central bank that can bail it out in times of crisis. This has left many investors wondering who will step in to prevent a total collapse of the market.
Treasury Secretary Janet Yellen has convened top financial regulators to discuss the collapse of SVB. However, it is still being determined what, if anything, they can do to prevent further damage to the market. There have been suggestions from Razer CEO Min-Liang Tan that Twitter should acquire SVB and transform it into a digital bank. Elon Musk has also expressed his willingness to consider this option, although its feasibility is yet to be determined.
