The start of a new week means it's time to catch up on all the news from the past week. PointPay has gathered all the most important news and events that we want to tell you about in one place. In today's digest we will talk about bitcoin and altcoin exchange rates, the lawsuit against KuCoin exchange and the crisis in American banks related to cryptocurrency, as well as some other interesting news.
Let's get started!
Bitcoin Exchange Rate
Last week, the bitcoin exchange rate dropped significantly from $22,500 to $20,600. The fall was due to a speech by Federal Reserve Chairman Jerome Powell, which marked the future tightening of the monetary stance of the US central bank.
The fall was exacerbated by the news of the liquidation of Silvergate Bank, a proposal to change the taxation of the cryptosphere, as well as a lawsuit against the cryptocurrency exchange KuCoin.
Altcoins showed a similar price graph, falling along with bitcoin. The fall of Ethereum was additionally provoked by the stretch the truth of its possible recognition as a security.
Lawsuit against the crypto exchange KuCoin
Cryptocurrency exchange KuCoin has been sued by the New York Attorney General's office, which claims that the exchange buys and sells tokens that are considered securities. The list of such tokens includes Ethereum, which the AG's office officially considers an unregistered security.
This is the first time that Ethereum has been considered a security. The SEC chairman had previously said that the commission could consider ETH a security, but had not done so at that time. The CFTC (Commodity Futures Trading Commission) has its own opinion on bitcoin and Ethereum, considering it as a commodity.
In his lawsuit, the prosecutor is asking the court to limit the ability of the KuCoin exchange to operate in New York without the proper permits, as well as to introduce controls over which IP addresses and GPS locations are being connected by clients of the exchange.
Crisis of American banks
Last week, there was a crisis of US banks associated with cryptocurrencies. It all started when Silvergate, which had been in trouble since early March, announced its closure. The bank had previously reported that it had suffered serious losses over the past year as major clients (such as FTX) withdrew money from the bank. In the aftermath, two influential figures urged citizens to withdraw their funds from Silvergate's accounts because the bank was not reliable. This led to an even greater outflow of funds and an orderly closure of the bank.
In the case of Silicon Valley Bank, this was an additional catalyst. In previous years, with the spread of covid, many citizens decided to put their money in Silicon Valley Bank, causing the bank's liabilities to triple. There were also significantly fewer borrowers, which meant the bank had to find ways to make money. Silicon Valley Bank's solution was to invest in mortgage-backed securities (MBS). However, the Federal Reserve System raised key interest rate, which has a negative impact on the price of mortgage-backed securities, while at the same time raising Treasury yields. In the context of an interest rate increase, the shares of various companies become cheaper, making them withdraw their funds from the SVB also. As a result, the SVB loses some of its existing funds and is unable to obtain new ones. This leads to the decision to close and liquidate the bank.
Bitcoin initially lost value on the news of bank closures, but then rebounded to the $24,000 level and now testing $26,000 level. This is likely due to investors turning to bitcoin as a substitute for banks to store funds.
USDC and DAI lost their peg to the dollar
The collapse of Silicon Valley also affected the USDC stablecoin. Circle reported that it had stored $3 billion in Silicon Valley Bank, which was part of the USDC's collateral. Amid this news, the stablecoin broke away from the dollar and fell to $0.87. After USDC, DAI also lost its peg because it held some of its collateral in USDC.
Shortly after the fall, Circle announced that it would replace all of its reserves, with USDC not losing any of its collateral. In addition, the funds held at SVB Bank were insured by the FDIC and will be fully reimbursed.
Many exchanges stopped trading with USDC, while other exchanges charged interest of up to 100% per annum, as many wanted to profit from the USDC rate. Currently, the USDC rate has almost stabilized and is at $0.99.
Elon Musk could not ignore the situation and said that he is thinking about buying Silicon Valley Bank to turn it into a digital bank.
Head of Binance CZ comments on banking situation
The head of the Binance exchange, CZ, also decided to comment on the situation with banks. In his message, he first said that Binance in no way suffered from the outbreak of the crisis, since it does not use the services of Silicon Valley Bank or Silvergate. CZ also said that the situation around banks is very similar to a conspiracy to close all banks that work with cryptocurrency companies. He also pointed out that in any case, the conspiracy failed due to the fact that the cryptocurrency community suffered, but it was not that significant. The entire US banking sector suffered much more, collapsing by dozens of percent at a time.
CZ quote — "Pure speculation. It seems that someone has coordinated efforts to shut down cryptocurrency friendly banks. What's the result? Banks closed, blockchains still functioning."
Summary
The result of last week was a serious fluctuation in the cryptocurrency market and a real test of USDC reliability. Bitcoin showed quite a sharp fall, but by the end of the week it already began to recover its position, and at the moment it reached $26,000. Stablecoin USDC temporarily lost its peg to the dollar, which affected many exchanges, but also recovered its rate at the moment. The reason for this was the closure of two major banks that worked with cryptocurrency companies.
So far, the situation in the cryptocurrency community has stabilized, while the US banking sector has suffered serious losses. Also, last week, US regulators promised to tighten monetary policy and possibly impose an additional tax on cryptocurrencies.
That's it for last week's top news. Come back next week for more news and developments in the new PointPay Crypto Digest.
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