By Landon Manning
As Silvergate Capital, Silicon Valley Bank (SVB) and Signature Bank all face severe financial issues, the cryptocurrency industry is facing a reckoning of its own that will be sure to impact the investment landscape and speaks to the fundamental value proposition of Bitcoin.
As CNBC outlined, Silvergate, SVB and Signature have been among the cryptocurrency industry’s go-to financial operations and have all suffered major operational blows in the last few days.
“Silvergate Capital, a central lender to the crypto industry, said…that it would be winding down operations and liquidating its bank,” CNBC reported. “Silicon Valley Bank, a major lender to startups, collapsed … after depositors withdrew more than $42 billion…Signature, which also had a strong crypto focus but was much larger than Silvergate, was seized…by banking regulators.”
Causing further chaos in the broader cryptocurrency market, the peg for Circle’s USDC stablecoin broke, with some $3.3 billion reportedly stuck at SVB.
On March 12, the U.S. Treasury, Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) announced that they would step in to protect SVB and Signature Bank depositors’ money. In the immediate aftermath of these developments last week, bitcoin and other large cryptocurrencies were suffering as a result.
“Bitcoin, Solana, and Ethereum are down almost 10% as of the time of this writing,” Fast Company reported. “Binance is down nearly 8%, Dogecoin is down over 10%.”
But as of this writing, BTC investors appeared to be rallying following the initial dip.
“The bitcoin and crypto market has rebounded after the U.S. government said it would step in to prevent a potential banking crisis from spreading,” according to Forbes. “The price of bitcoin and ethereum have made up the ground they lost .. while Circle’s USDC stablecoin has regained its dollar peg.”
Still, the initial impact on the bitcoin price following the failure of these financial institutions illustrates a harsh reality: even the first and highest-valued of all crypto assets, which is based on a trustless and decentralized international network that is not controlled by anyone, is still enmeshed within a wide ecosystem of other cryptocurrencies and crypto-based businesses that do depend on single points of failure.
A successful world for Bitcoin is in large part predicated on widespread adoption, with ordinary people turning toward it for everyday transactions. But intermediaries like these failed institutions and the companies that utilize them to offer Bitcoin services are still an integral part of the industry. As a result, and as seen now, failures with those intermediaries can impact an asset whose foundations should protect it.
So, for those investors who may be interested in crypto exposure, it’s important to remember how these dynamics can play out. Bitcoin has gone through many ups and downs over the years and it has weathered storms far worse than this, coming back stronger every time.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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