Bitcoin bounced back from $19697 to over $22600 in a few days, thanks to the steps taken by USD Coin [USDC]-issuer Circle and the U.S authorities following the closure of Silicon Valley Bank [SVB] on 10th March.
It needs to be mentioned that Silicon Valley Bank, the 18th largest bank in the nation, collapsed due to a bank run, just two days after raising capital.
Its problems began more than a year ago when the bank made significant investments in long-term gov bonds. Like other banks, Silicon Valley Bank held onto a tiny portion of the deposits and invested the remainder in the hopes of making a profit.
But bonds have an inverse relationship with interest rates.
The Federal Reserve started to raise interest rates last year in an effort to reduce inflation, which put pressure on many of the bank’s customers, who then started to withdraw money.
Silicon Valley Bank was forced to sell off some of its interests at a time when their value had decreased in order to satisfy those requests. The bank announced its unexpected loss on a few days earlier, saying it was close to $2 billion.
After regulators shuttered SVB, stablecoin prices swung wildly and gas fees soared as investors scrambled to move money.
Note that the bank has ties to crypto as it was the second crypto-linked bank to go under this week after Silvergate.
To make things further worse, Circle, the issuer of the world’s second-largest stablecoin has over $3 billion of reserves tied up at SVB which is why USDC massively depegged from its intended $1 price.
Bitcoin too fell below the $ 20k range amidst the widespread sell-offs.
Federal officials stated that SVB depositors will have access to all cash beginning Monday morning after the U.S. Open, although Circle stated the day before that it would make up for any shortfall in reserves in order to stop contagion from spreading like wildfire.
Bitcoin Recoups Its Weekend Losses
After the news, USDC has since made a modest recovery, but its main rival USDT saw its price surge to $1.06 momentarily on Kraken against the dollar as investors appeared to pull their funds out of USDC.
On the other hand, Bitcoin is up by over 7% in the last 24 hours at press time, regaining all the losses it incurred following the unprecedented event.