November 8, 2024

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Banks down? That is why Bitcoin was created, crypto community says

2 min read
2 years ago admin
Banks down? That is why Bitcoin was created, crypto community says

The Silicon Valley Bank (SVB) collapse on March 10 has sparked fear, uncertainty and doubt (FUD) across the crypto community, leading many to return to crypto roots — reviving the Bitcoin white paper published just weeks after the Lehman Brothers meltdown in 2008. 

“There’s an entire generation of builders who only read about Lehman and the financial crisis and scoffed at Bitcoin. Now, their eyes are wide open. Welcome new friends,” stated Ryan Selkis, founder and CEO of Messari.

Approximately six weeks after the dramatic collapse of Lehman Brothers — the fourth-largest investment bank in the United States at the time — Satoshi Nakamoto released the now-famous white paper, paving the way for the emergence of the Bitcoin network.

Some people blame the SVB failure on the rising interest rates in the United States. The Federal Reserve increased its benchmark rate over the past year to more than 4.5% — the highest rate since 2007. In January, the inflation rate in the U.S. was 6.4%.

Many crypto and tech companies are affected by the collapse of Silicon Valley Bank. SVB, a Federal Deposit Insurance Corporation-insured bank, was about to shut down operations when USD Coin (USDC) issuer Circle initiated a wire transfer to remove its funds. Circle revealed it could not withdraw $3.3 billion of its $40 billion reserves from SVB, leading to a sell-off and the stablecoin’s price dropping below its $1 peg. 

The stablecoin ecosystem felt an immediate effect as USDC depegged from the U.S. dollar. USDC’s collateral influence prompted other stablecoins to depeg from the dollar. Dai (DAI), a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging, Cointelegraph reported.

Other popular stablecoins, such as Tether (USDT) and Binance USD (BUSD), continue to maintain a 1:1 peg with the U.S. dollar.

Circle said it is now joining other customers and depositors in calling for the continuity of SVB, which the company alleged is important for the United States economy. Circle stated on Twitter that it would follow state and federal regulators’ guidance.

SVB was shut down by the California Department of Financial Protection and Innovation for undisclosed reasons on March 10. The California watchdog appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits. However, the FDIC only insures deposits up to $250,000 per depositor, institution and ownership category.