-- Cayman Islands, May 10, 2023, Established in 2013, Gate.io is one of the pioneering cryptocurrency exchanges in the world and offers services related to the trading of multiple leading digital assets. With over 10 million registered users, it is considered as one of the safest and most reliable global cryptocurrency platforms and is consistently ranked among the top 10 cryptocurrency exchanges based on liquidity and trading volume on CoinGecko. Gate.io has been verified by Blockchain Transparency Institute’s (BTI) market surveillance report and was also rated 4.8 by Forbes Advisor, making it one of the Best Crypto Exchanges in UK for 2022 September.
Gate.io offers one of the biggest selections of crypto assets as well as other services beyond its centralized cryptocurrency exchange, such as decentralized finance, research and analytics, venture capital investing, wallet services, labs and more.
The intersection of traditional finance and the crypto market has been thrust into the spotlight once again as two of the most crypto-friendly banks, and the biggest bank for tech startups collapsed within a week. This prompted the federal government to step in and provide a backstop for depositors in these banks. While cryptocurrency prices rallied in response, the stability of the banking sector is now being questioned. But what caused all this? Let us delve deep into the events and understand what exactly happened and how this may kick-start a very long bull run for the crypto markets.
Two Crypto-Friendly Banks Collapse Over The Weekend
Silvergate Capital, a central lender in the crypto industry, announced on Thursday that it would wind down operations and liquidate. Silicon Valley Bank (SVB), which played a similar role in managing money for venture capital-funded startups, said it needed to raise $2.25 billion to shore up its balance sheet. After which, depositors withdrew over $42 billion, and state regulators eventually shut the bank down on Friday. Signature, another crypto-focussed bank that was larger than Silvergate, was seized on Sunday evening by the regulators.
Both Silvergate and Signature were two of the leading banks for crypto companies, and nearly half of all US venture-backed startups kept their funds with Silicon Valley Bank. In a general sense, all these banks were undone by the same challenge: classic bank runs. Bank runs are a type of financial panic that occurs when a large number of depositors withdraw their money from a bank due to concerns about the bank's solvency. That means these banks had to sell their backing assets for a substantial loss when cash demands got high.
Traditional Finance Instability Leads to Crypto Rally
As state regulators shuttered the Signature Bank, which roughly had 30% of its deposits from crypto clients, Bitcoin fell below $20,000, and ETH was trading at the $1,400 level. However, later that day, the federal government guaranteed all deposits for SVB and Signature depositors. This added confidence and sparked a rally in the crypto market, boosting Bitcoin and Ether prices by 15% and 10%, respectively. Currently, Bitcoin is trading at over $29,500 and is seeing its best week of performance since October 2019.
However, the shutdown of the three banks could present problems for Bitcoin in the long run. Silvergate and Signature were platforms that enabled crypto clients to make payments 24 hours a day and seven days a week. Their collapse can affect the liquidity of Bitcoin and crypto in general as they supported a significant share of fiat settlement for bitcoin trades. Good news is that the new banks are already stepping in, so in short, the red flags are already down.
Not so Stable Stablecoins
Last year, many problems in the crypto industry originated from the collapse of the stablecoin Terra USD (UST) in May. Meanwhile, New York regulators and SEC seem to be going after Binance's dollar-pegged stablecoin, BUSD, which saw massive outflows. While confidence in this sector was already low, USDC issuer Circle tweeted that it has $3.3 billion banked with SVB. While Circle has been long regarded as one of the safest stablecoins, with connections and backing from traditional finance, it was not safe from investor fear.
As a result, USDC lost its $1 peg and dropped below 86 cents at one point on Saturday. Similarly, DAI, another popular dollar-pegged stablecoin partially backed using USDC, plunged as low as 90 cents.
It is important to note though, that USDC did everything by the book, and it was the actual banking sector that caused the depeg. Naturally…
On Saturday, many crypto traders started swapping their USDC and DAI for Tether USD (USDT), the biggest stablecoin with a market value of $72 billion. While USDT's issuer wasn't exposed to SVB, its business practices and state of reserves are questionable. Regardless, as traders looked for a safe haven in panic, USDT traded above its $1 peg. The stablecoin market gradually rebounded on Sunday as Circle CEO Jeremy Allaire updated on the situation, saying all the deposits from SVB are secure. Hence, both DAI and USDC shifted back towards their dollar peg.
Final Say
In conclusion, the past week's events have highlighted the interconnectedness of traditional finance and the crypto industry. The collapse of Silvergate, Signature, and SVB, the depegging of USDC, and the subsequent crypto rally have all brought attention to the challenges and opportunities of this emerging market. While the collapse of crypto-friendly banks has caused concern about liquidity and stability, the rally in cryptocurrency prices suggests growing investor interest and institutional adoption. Leading crypto exchanges like Gate.io saw an increase in trading volume, and also reported a positive sentiment and outlook. The stablecoin market, which had previously been considered a safe haven, was also thrown into question but ultimately recovered. In fact, it is now crypto as a whole that is considered to be a safe haven, instead of banks. As the crypto industry continues to evolve, it will be necessary to closely monitor the impact of traditional finance on this emerging market and vice versa.
Contact Info:
Name: George Allen
Email: Send Email
Organization: Gate.IO
Website: https://www.gate.io/
Release ID: 89097242
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