Whilst cryptocurrency is inherently tied to fiat currency, news about market swings – or any events that have significantly shaken the crypto landscape – are often tied to the metaverse, or at least, the public perception of the metaverse. After all, with such a volatile market, there is enough blockchain news to be focused on without paying attention to every detail of the traditional financial market. But there is an emphasis on “often” because, by nature, cryptocurrency is affected by fiat currency.
This second winter that crypto users are experiencing, for instance, can be traced directly back to the US dollar, which both Terra and Luna were pegged to. For any investors out there, no matter whether they are focusing on globally popular tokens, like Bitcoin, or lesser-known altcoins, like Algorand; news of the “outside world” should always be noted and assimilated into trading strategy plans. Of course, the Algorand Price and Bitcoin price differ enormously, but both are going to be affected one way or the other.
The SVB Situation
This, in many ways, is why the SVB collapse caused shockwaves across the crypto landscape. To give a little information, Silicon Valley Bank recently became the largest bank to fail since the financial crisis back in 2008. This is in no small part due to its unique set-up. Being concentrated in the tech industry, SVB had started to see a dwindling in funds, which subsequently led to clients to tap their accounts far more frequently than they had been before.
This, along with the rising interest rates in the US, led to the bank selling its investments at a steep discount, just to stay afloat. When SVB then revealed its losses, the tech industry reacted, with many start-ups pulling out their finances, which subsequently led to a bank run.
Many readers might be wondering why this was significant to the cryptocurrency market. Once again, it comes down to stablecoins. During a time of acute pressure, it is essential that stablecoins remain pegged to their currency. The purpose of stablecoins is that they are the link between crypto and traditional finance – maintaining their value with a tangible asset no matter what happens.
However, after the SVB collapse, Circle admitted a $3.3 billion exposure to the bank, which led its USDC to fall to 88 cents – 12 cents less than the $1 dollar it was supposed to be pegged to. As a reminder, this is the second-largest stablecoin in the world. Given the fallout after the Luna and Terra debacle in 2022, its failure to remain side-by-side with the dollar risked an even deeper hole that every coin – Bitcoin, Ether, Algorand, DOGEcoin, or just about any token you can think of – could easily have fallen into.
But… They Didn’t?
It sounds worrying, right? But at this present moment, the crypto landscape is – touch wood – relatively unchanged. If anything, it’s starting to surge again. So what does the news of SVB mean and is crypto actually going to feel the fallout? Well, one of the reasons that things don’t seem too dire is, in part, due to the size of Circle itself. After the SVB collapse, Circle moved as much as $5.4 billion to BNY Mellon, meaning the money became secure. In many ways, it showed that USDC is almost too big to fail.
As well as this, the crash of SVB could have had a beneficial effect when it comes to public relations. One of the reasons cryptocurrency does not have more users is because of the perceived safety of traditional banks. But the fall of SVB has, in no small way, shaken that assumption.
It’s important to note that the concept of Bitcoin – which was actualised back in 2009 – was a direct answer to the bank collapses of 2008. It was born amidst a financial crisis and, likewise, it can clearly thrive inside another. Not to mention, there are now nearly 22,904 alternative tokens existing within the cryptocurrency market. A situation like this has the potential to strengthen the perception of these coins and similarly increase the chances of a price soar.
The Way Forward
That being said, it isn’t all good news. With SVB being a crypto-friendly bank, there are a number of critics – including members of the US Congress – who state that the strong crypto focus was part of the reason it fell in the first place. Government perception of cryptocurrency has always been shaky, mostly due to the fact that it is run on a decentralised network, meaning users are in control of their finances – without the same regulation that befalls traditional banks.
It is possible, therefore, that the fall of SVB could be used to send a message about cryptocurrency and its ill-advised utilisation in the “real-world”. But the problem with SVB was with its financial backing, not the buying and selling of cryptocurrencies. The reason behind the collapse, therefore, is unlikely to be directed at cryptocurrency.
What is likely is that, in the aftermath of SVBs collapse, cryptocurrency will come out on the other side with few scratches. It wasn’t a positive thing, of course, and the landscape of cryptocurrency certainly had a brush with disaster. It demonstrates how much of an impact the financial infrastructure can have on the decentralised. But in terms of the future, despite the SVB fall, the concept of cryptocurrency remains just as attractive – if not more so.
