Crypto Spotlight - Bitcoin and USDC bounce as regulators' gaurantee financial assets for clients of troubled banks, Binance converts $1 billion worth of reserves into native crypto

What a rollercoaster it was for the cryptocurrency market last week. The drama kicked off last Wednesday when California crypto banking giant Silvergate Capital announced its closure and subsequent liquidation of Silvergate Bank. The news sent Silvergate Capital’s stock price plummeting, following a month-long downward spiral for the embattled crypto lender.

Then, the sudden collapse of crypto-friendly Silicon Valley Banking (SVB) on Friday caused chaos in the cryptocurrency market. Stablecoin prices and gas fees skyrocketed, while Circle Internet Financial's USDC stablecoin depegged from its $1 value, dropping to as low as $0.869 on the Kraken exchange. 

$3.3 billion of the reserves backing USDC were tied up at SVB. As stablecoins derive their value from those reserves, this caused USDC's market capitalization to slump below $40 billion. Bitcoin climbed back above $20,000 as investors appeared to shift money away from USDC. 

Finally, on Sunday, U.S. regulators closed down New York-based Signature Bank, a major lender in the crypto industry, to prevent a banking crisis from spreading. The Treasury, Federal Reserve, and FDIC released a joint statement announcing the closure and said depositors will have full access to their funds. Signature Bank is one of the main banks serving the cryptocurrency industry, with a market value of $4.4 billion as of Friday.

The aftermath saw digital asset investment products hitting outflows for the 5th consecutive week totaling US$255m, the largest single weekly outflows on record. The outflows represent 1.0% of total assets under management (AuM). The outflows have wiped out all the inflows seen this year. Bitcoin, being the largest digital asset, was the primary focus, seeing outflows totaling US$244m last week. However, despite the closures of financial institutions last week, the market has bounced back.

1 - Bitcoin and other cryptocurrencies have rallied after the US Treasury and Federal Reserve announced measures to stabilize the banking system. They reassured depositors at Silicon Valley Bank (SVB) and Signature Bank that all their funds were safe and would be repaid. The move comes as US authorities take possession of Signature Bank, the second bank failure in a matter of days.

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2 - The stablecoin USD Coin (USDC) is rebounding back toward its $1 peg after CEO Jeremy Allaire confirmed that its reserves are safe and new banking partners are lined up. The price had dropped to as low as $0.87 over the weekend amid concerns about $3.3 billion worth of reserves at Silicon Valley Bank.

Allaire praised the US government and Federal Reserve for its $25 billion funding program to support liquidity-troubled banks. It also stated that Circle is potentially bringing on a new transaction banking partner with automated minting and redemption as soon as tomorrow.

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3 - Binance CEO and co-founder Changpeng Zhao have announced that the remaining $1 billion in the company's Industry Recovery Initiative will be converted from BUSD stablecoin to native crypto such as Bitcoin, Binance Coin, and Ethereum due to "changes in stablecoins and banks." Some in the crypto community praised the move, while others questioned the decision to sell a stablecoin and invest in more volatile assets.

4 - OKCoin, a US-based exchange, has temporarily suspended USD deposits due to the collapse of Signature bank, which is their primary USD bank for customer transactions. However, customer deposits are safe and USD withdrawals are not affected.

The exchange is working on alternative solutions in real time. There are concerns about the liquidity vacuum caused by the disappearance of Silvergate Exchange Network (SEN) and Signature's competitor, Signet, for crypto-fiat liquidity. OKCoin's sister exchange, OKX, is not affected by this news, and its native token, OKB, is up 6.6% in the last 24 hours.

5 - A solo Bitcoin miner using the Solo CK Pool mining service produced a valid hash for block 780,112 and received a reward of 6.25 BTC and a fee reward of around 0.63 BTC, worth about $148,000. The miner's hash rate represented around 0.002% of the network's total computational power. The miner rented 5 PH/s worth of computing power for less than a day to produce the valid hash. The block contained 3,220 transactions worth around 16,940 in Bitcoin volume.