• On March 10, California regulators officially shut down Silicon Valley Bank (SVB) 48 hours after the company disclosed it was in financial distress.
• The SVB fiasco triggered a short but intense period of fear and trepidation in crypto markets as Circle’s USD Coin (USDC) depegged.
• Washington put out the SVB fire quickly by announcing that all depositors, and not just accounts worth up to $250,000, would be protected.
Silicon Valley Bank Shutdown
On March 10, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank (SVB) 48 hours after the company disclosed it was in financial distress. This prompted federal regulators in the United States to step up and backstop SVB depositors before a bank run could ensue.
USD Coin Depegging
The SVB fiasco also triggered a short but intense period of fear and trepidation in crypto markets as Circle’s USD Coin (USDC) depegged. The only thing Circle did wrong was holding a portion of its deposits at SVB when it collapsed.
Protection for Depositors
Washington put out the SVB fire quickly by announcing that all depositors, and not just accounts worth up to $250,000, would be protected. President Joe Biden later confirmed that shoring up depositors would not cost the taxpayer anything.
Crypto Market Reactions
Although government protections weren’t enough to stem a massive drop in bank stocks once markets reopened on Monday, Bitcoin (BTC) and the broader crypto market soared. Did FDIC bail out Bitcoin? Only time will tell.
Conclusion
Crypto investors should know by now that it doesn’t take much to topple a distressed multi-billion-dollar firm. Turmoil in traditional finance spilled over into Bitcoin and crypto markets this week, forcing federal regulators to step in and protect depositors with government backstops while BTC prices continued their climb higher despite uncertainty surrounding global finance institutions such as Silicon Valley Bank collapsing amid financial distress.