The Takedown of the Banks, the Collapse of USDC and the Crypto Market

With Efe Bulduk, we compiled the collapse of the US-based bank company Silicon Valley Bank, the collapse of the stablecoin service USDC, and the burgeoning crypto market.

The moves of the USA to fight inflation sharply bring with it interest rate hikes. The USA, which has been increasing interest rates regularly for a long time, has not yet signed a sharp decrease in inflation. In addition, this situation fueled the concern of recession by global markets. As a matter of fact, the first product of fears created a bomb effect on the agenda. Silicon Valley Bank, one of the most important banks in the USA, went bankrupt. This bankruptcy also caused Circle, the parent company of stablecoin service USDC, to lose $3.3 billion, and the collapse of traditional finance spilled over into the crypto industry.

The Collapse of Silicon Valley Bank, a Regulated Bank in the USA

USA-based Silicon Valley Bank stands out as a bank preferred by more venture capitalists due to its regulation. The bank’s largest funds are Venture Capital (VC) and start-ups. These organizations stand out as companies that grow with the investment funds they collect or the support they receive. Therefore, they hold a large holding on Silicon Valley Bank.

Among the funds on Silicon Valley Bank, $2.85 billion from a16z, $1.72 billion from Paradigm and $560 million from Pantera Capital, according to several documents that have emerged. Efe Bulduk, who prepared a detailed report on the subject, stated that Silicon Valley Bank has an asset of 186 billion dollars. Bulduk also stated that the bank has a debt of 190 billion dollars.

As Coinkolik, we evaluated with Efe Bulduk the collapse of Silicon Valley Bank, its spillover to decentralized finance products, and how this crash affected its stablecoins, specifically USDC.

Why Did the Collapse of Traditional Finance Affect Decentralized Finance Products? What Role Does the Circle Play Here?

Although the cryptocurrency market stands out as the golden pearl of the digital age with its decentralized term, it moves in parallel with traditional financial products in a way. The US interest rate hike, recession concerns, various bankruptcies and collapses can therefore also affect the cryptocurrency market.

We asked Efe Bulduk why decentralized financial products were affected in the collapse of traditional finance and what role USDC issuer Circle played here.

Bulduk, referring to the crypto money market that does not act independently of global finance, stated that the second biggest bank collapse after Lehmann Brothers took place. The occurrence of such a situation causes large investors, corporate companies and big players to go into “risk-off” mode. According to Bulduk, these actors try to avoid risk by closing their positions. This, on the other hand, causes prices to fall.

Silicon Valley Bank served as Circle’s reserve bank. This situation stands out as one of the biggest reasons why Circle could not save its $ 3.3 billion asset inside. We found that, due to the exposure of USDC issuer Circle to such a situation, it may cause small investors to fear and exit the market. This view of Bulduk also reveals the falling crypto money market and stablecoin outflows with the reflection of the news flow on the agenda.

Efe Bulduk thinks that Venture Capitals and start-ups holding assets in the bank are another reason for the falling cryptocurrency market with the collapse of Silicon Valley Bank. We found that these organizations could start selling cryptocurrencies to cover their operating expenses, referring to their money being stuck in the bank. Bulduk stated that these crypto sales can be tracked on-chain and this tracking feature causes sales pressure in the general cryptocurrency market.

What Awaits Us In The Crypto Market After Crypto Exchanges And Stablecoins?

The crypto industry has been under the influence of negative news and negative developments for almost a year. The $ 40 billion lost with the eruption of the Terra crisis, the trust lost with the bankruptcy of FTX, and the turmoil that emerged with the collapse of Silicon Valley Bank affected the entire crypto industry.

Many negative events that occur almost every month have also mobilized the regulators of the countries. In particular, US regulators began to put intense pressure on cryptocurrency exchanges and DeFi projects. The ongoing legal processes of FTX, Bitzlato facing money laundering charges, Binance going through various investigations and finally the lawsuit filed against KuCoin have gained a heavy spot on the agenda. These pressures, which tightened after the bankruptcy of FTX, cause cryptocurrency exchanges to act on their toes. Binance CEO Changpeng Zhao (CZ) started posting “4” almost daily.

Pressures on cryptocurrency exchanges are now starting to bounce on stablecoins. It was one of the recent stablecoin developments that Paxos was investigated on BUSD and Binance was directly at the center of the events and exposed to FUDs. This development revealed the pessimistic atmosphere in the crypto money market, and the markets went down by pricing the Fed interest rate hike. The final blow to the breathing cryptocurrency market came when USDC became a depeg and dragged all stablecoins with it.

Dollar-based stablecoins, which provide the exact use of the US dollar in the crypto money market, are below 1 dollar, except for USDT.

Intensified recession concerns and the US’s determination to raise interest rates suggest that Silicon Valley Bank-style events may escalate. In this case, the collapse of traditional financial products and banks will also affect the crypto markets in parallel, as Bulduk said. Financial products toppled by the effect of dominoes act in a uniform way, without distinguishing between risky assets or risk-free assets. The losses incurred by investors holding money in the bank are in a position to cause the crypto money market to be mobilized by the institutions of the banks.

Looking ahead, it is clear that as a result of these events, more regulators will enter the sector. Bulduk stated in his published report and in the Coinkolik interview that the events came to these places mostly as a result of the “bank run”. Such situations are likely to be scrutinized by regulators, as they will impact entire markets and make investors suffer.

We asked Efe Bulduk about the impact of all these processes on the cryptocurrency market. We found that a “witch hunt” for crypto has begun in the US. Bulduk underlined that with the bankruptcy of FTX, all perceptions towards the crypto industry have changed. Bulduk, citing this, stated that FTX was a funder in the elections in the USA. The fact that Sam Bankman-Fried later committed crimes with the term theft and the involvement of US athletes and famous economists in these processes led the USA to turn to crypto. Bulduk stated that US regulators preferred to blow up Silvergate and Signature Bank. We found, the FDIC, DoJ, NEC, OCC, Fed, and White House said a coordinated pressure was created.

Stating that these pressures will continue, Bulduk said;

Efe Bulduk: They Touch Everywhere Dollars Are Included

After stating that priority regulation can be seen in stablecoins, Efe Bulduk also touched on the progress on USDC, BUSD and other stablecoins. We found that until regulation comes to stablecoins, pressure and price volatility can be seen as much as possible.

Bulduk stated that US regulators focused on BUSD as the primary target in the Paxos investigation, thus giving a signal to Binance. Stating that there are new jumps in USDC, Bulduk stated that they can’t do much to Tether (USDT), but they interfere with everything that enters dollars. Specifically, we found it, he said;

We found that people writing stories here would want the US to be more dominant if crypto stays. However, he stated that if crypto is not left, they will approach it with the logic of “thank you”.