13
Mar
2023

Coinbase Reveals Exposure To SVB After Crypto Settles Down

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TL:DR

  • Several crypto firms, including Coinbase, Celsius, and Paxos, have funds tied up with Signature Bank, which was recently shut down by New York regulators.
  • Stablecoins such as the USDC recovered after Circle, the issuer of USDC, announced it would fully redeem its USDC reserves deposit held at Silicon Valley Bank (SVB).
  • The closure of Signature Bank and SVB shows a growing regulatory crackdown on crypto businesses, and market sentiment remains skittish.

Several Firms had ties to the banks

Several crypto firms, including Coinbase, Celsius, and Paxos, have revealed that they have funds tied up with Signature Bank, which was recently shut down by New York regulators. Despite the bank’s closure, Coinbase has stated that it expects to recover around $240 million in corporate funds held at the bank. Paxos, which is a stablecoin issuer, also disclosed that it has $250 million at the bank, but that it holds private insurance that covers amounts beyond the standard FDIC insurance of $250,000 per depositor. Meanwhile, the Celsius Official Committee of Unsecured Creditors confirmed that Signature Bank held some of its funds but did not disclose the amount.

Other firms and CEO’s have taken to Twitter as well to quell fears of their community and express that they had no connection to the bank and things were perfectly fine.

As Signature Bank was a key partner for many crypto firms, some have voluntarily disclosed their exposure to the recently closed bank to quell fears about related exposures. Immutable X and Theta Network separately tweeted that they had no exposure to Signature, while Tether’s Chief Technology Officer Paolo Ardoino confirmed that Tether was also not exposed.

The forced closure of Signature Bank was in conjunction with other banking-related announcements by U.S. regulators, including the approval of the FDIC to take actions to protect depositors at Silicon Valley Bank, a tech-startup-focused bank that experienced liquidity issues due to a bank run that spread contagion to the crypto sector. The Federal Reserve also announced a $25 billion program to ensure ample liquidity for banks to cover the needs of their customers during times of turbulence.

A Bit of Stability

Cryptocurrencies stabilised on Monday after the U.S. authorities intervened in the case of Silicon Valley Bank (SVB), announcing plans to limit the damage to the banking system after SVB’s collapse threatened a broader financial impact. The USDC, also known as USD Coin, recovered to $0.9917, up from a record low of $0.87 hit on Saturday, far below its intended peg of 1:1 against the dollar.

Stablecoins such as the USDC are designed to keep a steady value and are typically backed by reserves of traditional assets such as dollars, bonds, or gold. Circle, the U.S. firm that issues USDC, said it would fully redeem the USDC reserves deposit of $3.3 billion, about 8% of its total, held at the collapsed SVB Bank when U.S. banks open on Monday.

Shares of Signature Bank (SBNY.O), another key banking firm for crypto companies, were halted for trading as New York’s chief financial regulator took possession of the bank, indicating another blow to connections between the crypto and banking sectors. The relief for cryptocurrencies was tempered by the regulator’s move, indicating the closure of three of the main U.S. banks used by crypto businesses this year.

ConcernsĀ 

The fall of SVB raised concerns about the exposure of Circle to the bank, leading to USDC hitting its record low. However, the cryptocurrency stabilised after Circle’s CEO, Jeremy Allaire, announced on Twitter that the company’s USDC reserves deposit would be fully available at U.S. banks’ opening on Monday.

Circle’s USDC operations opened for business, including with new automated settlement via their partnership with Cross River Bank. Cross River did not immediately respond to a request for comment. Stablecoins, such as USDC, the second-largest by market size, are a crucial component in the world of crypto trading, as they keep a steady value and are typically backed by reserves of traditional assets such as dollars, bonds, or gold.

The fall in SVB and California-based Silvergate Bank, along with the closure of Signature Bank, indicates that three of the primary U.S. banks used by crypto businesses have failed this year. Shares of crypto miners Riot Blockchain (RIOT.O) and Marathon Digital (MARA.O), crypto exchange Coinbase Global (COIN.O), and software developer MicroStrategy Inc (MSTR.O) rebounded from last week’s lows to gain between 6.5% and 10% in U.S. premarket trading. However, analysts warned that market sentiment would remain skittish despite the U.S. measures. Alvin Tan, head of FX strategy at RBC Capital Markets in Singapore, said, “The situation is evolving, but volatility looks set to remain elevated in the coming days.”

The closure of Signature Bank shows a growing regulatory crackdown on crypto businesses. Coinbase tweeted that it was facilitating all client cash transactions with other banking partners after Signature’s fall. Coinbase also had an approximately $240 million balance in corporate cash at Signature Bank, as of Friday’s close, but it expects to fully recover the funds.

The U.S. intervention following the collapse of SVB has brought relief to cryptocurrencies such as the USDC. The news of Circle fully redeeming its USDC reserves deposit held at SVB has brought stability to the market. However, the closure of Signature Bank and Silicon Valley Bank shows once again the fragility of the house that was built by those that played a rather shaky game of cards. The marketĀ sentiment remains skittish. The fall of three of the main U.S. banks used by crypto businesses this year has raised concerns about the exposure of crypto companies to the banking sector. While shares of crypto miners, exchanges, and software developers rebounded from last week’s lows, analysts warn that volatility is likely to remain elevated in the coming days. The situation is evolving, and it is essential to monitor developments in the crypto and banking sectors.

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