Problems in the banking sector have created uncertainty in the cryptocurrency market, according to the co-issuers of the USDC stablecoin—Circle and Coinbase, The Block reports.
On 11–12 March, USDC’s price diverged sharply from parity after reports that Circle held part of the asset’s reserve at SVB, amounting to $3.3 billion.
The situation normalised after the regulators’ decision to rescue the bank’s depositors. The Fed also launched a $25 billion Bank Term Funding Program (BTFP) to restore confidence in the sector.
Beyond SVB, Circle also worked with SBNY and Silvergate Capital, which also collapsed in recent days.
Media reports revealed that the leadership at Silicon Valley Bank included a former CFO of the infamous Lehman Brothers Joseph Gentile, as well as a risk manager at Deutsche Bank, Kim Olson, during whose tenure the institution paid a $7.2 billion penalty for deceiving investors.
Two executives at SVB worked at banks that contributed to crisis https://t.co/TxM7knPdoJ
— Daily Mail US (@DailyMail) March 13, 2023
The irony in this black swan is that the contagion originated not from crypto to TradFi, but from TradFi to crypto, — Caroline Hill, senior director of global policy and regulatory strategy at Circle.
The senior executive urged improvements to the regulation of the sector.
«Ultimately we adhere to a fully reserved model for the stablecoin, dependent on banks», she explained.
The Block noted that recent days have further strained relations between TradFi and the digital-asset industry. U.S. banking regulators issued numerous warnings about crypto-related risks shortly before problems at Silvergate, though the bank’s collapse was driven by a drain of deposits.
The European Commission adviser on Markets in Crypto Assets (MiCA), Peter Karster, acknowledged challenges for the industry in the wake of the collapse of the three mentioned banks.
«Many banks, … some regulators say they will have nothing to do with cryptocurrencies», he explained.
According to Coinbase’s vice president of regulatory policy, Scott Bauguess, the industry has difficulty because of the limited number of banks that continue to do business with crypto firms.
«They are concentrating risks in the banking sector. We see that TradFi has infected the industry, not the other way around», the executive explained.
Custodia’s CEO Caitlin Long (formerly Avanti), whose crypto bank received the Fed’s refusal to obtain a license, condemned the regulator’s admission of errors in SVB oversight.
«Mr. Barr [in charge of this function at the Fed], is Custodia’s 100% reserve model unsafe and unsustainable? Aren’t you curious how we anticipated and warned about the bank-service issues? Won’t you finally meet?» she asked.
In February, Long admitted corruption in matters of regulating crypto firms.
Earlier, Compound founder Robert Leshner did not rule out an “Armageddon” in the industry as a result of actions by U.S. regulators.