Crypto recap: Silicon Valley Bank shutdown irks market

Published March 12th, 2023 - 04:01 GMT
Crypto recap: Svb shutdown, USD coin depegging, biden’s 30% mining tax
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ALBAWABA - The crypto news recap this week comprises shockwaves of FUD caused by the recent news in the cryptocurrency industry, including the shutdown of the Silicon Valley Bank, the de-pegging of the USD Coin from the U.S. dollar, and U.S. President Joe Biden's budget proposal that would impose a 30 percent tax on electricity costs for U.S. crypto miners.

Without any further ado, let's dive in.

USD Coin's Value Drops Below $1 After $3.3 Billion in Reserves Remain at Silicon Valley Bank

The collapse of Silicon Valley Bank (SVB) on March 10 has sent shockwaves throughout the crypto sphere causing fear, uncertainty, and doubt (FUD) among the cryptocurrency community. This has resulted in a resurgence of interest in the Bitcoin white paper, which was released shortly after the Lehman Brothers financial crisis in 2008.

Circle, the issuer of USD Coin (USDC), has confirmed that $3.3 billion of its $40 billion USDC reserves are still being held at Silicon Valley Bank. This announcement caused a sell-off in the market, resulting in USDC dropping below its $1 peg. The entire stablecoin ecosystem was affected, and other stablecoins such as DAI, USDD, and FRAX also depegged from the U.S. dollar. However, USDC's price began to stabilize on Saturday after a period of turbulent trading. Circle has announced plans to address the missing liquidity at SVB by using corporate funds.

Silvergate Bank to Liquidate Crypto Arm, Raising Concerns for Crypto Firms

Due to recent industry and regulatory developments, Silvergate Capital Corporation has announced plans to close its crypto arm, Silvergate Bank, and liquidate its operations. The bank's solvency was questioned due to the delay in filing an annual financial report, as it was one of the major banking partners for numerous crypto firms. While the closure of Silvergate Bank may not pose a systemic risk to the US banking system, crypto firms are preparing for the potential consequences, such as increased banking concentration and difficulties for venture capital firms dealing with cryptocurrency in the U.S.

US Crypto Miners May Face 30% Tax on Electricity Costs Under Biden Budget Proposal

President Joe Biden's budget proposal includes a measure that would impose a 30 percent tax on electricity costs for U.S. crypto miners, with the aim of reducing mining activity. The White House stated that any firm using resources, whether owned or rented, would be subject to the 30 percent tax on the electricity cost used for mining digital assets. The budget proposal also includes ending tax-loss harvesting and increasing tax rates on capital gains for some investors. The tax rate on long-term investments may rise to 39.6 percent, up from the current 20 percent tax rate, which could also affect the crypto industry.

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