Markets Recover After U.S. Regulators Backstop Deposits At Failed Banks

The crypto markets are rebounding after Circle, the company behind the USDC stablecoin, assured investors that its reserves held with the failed Silicon Valley Bank are safe.

On Sunday, Jeremy Allaire, the co-founder of Circle, tweeted that all of its assets are secure after U.S. financial regulators took control of Silicon Valley Bank.

Authorities said depositors‘ funds are covered by the Federal Deposit Insurance Corporation (FDIC)’s deposit insurance fund, meaning SVB depositors will have access to their funds on Monday.

“The US government and financial regulators [took] crucial steps to mitigate risks extending from the fractional banking system,” Allaire wrote. “100% of deposits from SVB are secure and will be available at banking open tomorrow.”

Crypto Rally

Investors responded to Allaire’s tweets by buying up USDC and DAI.

Both stablecoins cratered to as low as $0.88 over the weekend as fear, uncertainty, and doubt ignited by Circle’s exposure to SVG swept through the crypto sector. With USDC making up more than 40% of the assets backing MakerDAO’s DAI stablecoin, many investors dumped DAI alongside USDC.

DAI and USDC have since returned to their dollar pegs, according to CoinGecko.

The broader web3 sector also began rebounding on Sunday night. Bitcoin is up nearly 16% in the past 24 hours, while Ether has rallied more than 10% to last change hands for $1,680.

DeFi assets surged, with Synthetix (SNX) up 33%, Maker (MKR) rallying 30%, Lido (LDO) bouncing 22%, and Frax (FXS) recovering 16% over the past day.

The combined market cap of DeFi projects is up 10% today after slumping 17.5% between March 2 and March 12.

Combined market cap of DeFi assets in March. Source: CoinGecko.

Binance To Deploy $1B

Markets caught a further tailwind after Binance, the top centralized exchange, announced it will mobilize the remaining $980M from its $1B Industry Recovery Initiative that it set up in November to purchase Bitcoin (BTC), ETH, and Binance Coin (BNB).

Circle customers also minted 407.8M USDC on Monday as confidence in the asset recovered.

On Saturday, Circle said $3.3B of the $40B in assets backing USDC were held at SVB, equating to one-third of its cash reserves.

Wild Week For US Banks

The market volatility came after bank runs crippled three of the top U.S. financial institutions serving the tech sector.

On March 8, Silvergate Bank, a prominent institution serving the crypto industry, said it was entering voluntary liquidation after suffering a run on its reserves. However, many large CeFi firms said they had already unwound any material exposure to the bank.

On Friday, The California Department of Financial Protection and Innovation (CFPI) shut down Silicon Valley Bank (SVB) after the bank said it needed $2.25B to honor deposits. SVB also suffered a run on its reserves after news of its solvency issues broke, with the bank holding a negative cash balance of $958M on Saturday after clients withdrew $42B the previous day.

On Sunday, New York financial regulators shut down Signature Bank, another institution focused on the technology and crypto sectors, citing fears that its continued operation could pose systemic risks to the broader financial system.

A joint statement from the U.S. Treasury Department, Federal Reserve, and FDIC said the bank’s customers will have full access to their funds. However, equity and bondholders at the banks will be wiped out.

“All depositors of this institution will be made whole,” the FDIC said. “As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”

Coinbase, the top U.S. centralized exchange, said it held $240M at Signature. “As stated by the FDIC, we expect to fully recover these funds,” it said.

Paxos, the U.S.-based stablecoin issuer, also tweeted it held $250M with Signature.

HSBC To Acquire SVB’s UK Arm

On Monday, HSBC announced it will acquire the UK-based subsidiary of SVB for 1 British pound ($1.21). The parent company is not included in the transaction.

The U.K. Treasury described the deal as protecting the deposits of SVB’s UK clients, which include many startups representing the country’s tech sector. “[HSBC’s acquisition] ensures customer deposits are protected and can bank as normal, with no taxpayer support,” said Finance Minister Jeremy Hunt.

Bank of England said no other British banks are “directly materially affected” by the failure of SVB.