How the crypto industry reacts to recent bank bailouts

In its early days, crypto enthusiasm was fuelled by the promise to cut the rigged banking system out of the people’s basic need to exchange goods and funds. To some degree, it still is. But as digital assets become more and more intertwined with a larger financial market, this tension gradually fades away. 

The recent wave of partial bailouts of failed institutions such as Silvergate Bank, Signature Bank and Silicon Valley Bank (SVB) has not raised any concerns among the crypto community. Moreover, the United States Federal Reserve System came as a savior, at least in regard to USD Coin (USDC) issuer Circle, which kept a significant portion of its reserves in Signature Bank and SVB.

If the Fed decided to let the banks fail, we would probably have witnessed another sharp dip in the crypto market and not the optimistic resurgence of the last two weeks.

Does this mean that the crypto industry has come to a point where it is highly dependent on traditional banking and cannot contrapose itself as an alternative anymore? Is that kind of interconnectedness desirable for digital assets or should the industry create some distance from traditional finance (TradFi)?

Was it a bailout?

Technically, both SVB and Signature were bailed out, but economists are highlighting the major difference between the current solution and the U.S. government’s actions during the economic crisis in 2008.

“During the [2008] financial crisis, there were investors and owners of systemic large banks that were bailed out,” as Treasury Secretary Janet Yellen explained, but this time, it was depositors who got their back covered by the Deposit Insurance Fund, supplied by the banks, not taxpayers.

The Federal Deposit Insurance Corporation (FDIC) has effectively guaranteed all deposits at both banks beyond its normal limit of $250,000 per account. Still, it was only due to the FDIC’s support that Circle was able to withdraw the whole $3.3 billion deposit from the SVB and save USDC from further depegging.

Recent: US enforcement agencies are turning up the heat on crypto-related crime

Still, isn’t there something odd about an industry with a strong anti-establishment and even anti-Fed background taking federal backing for granted, if not outright advocating for it?

Maybe not, as no speaker Cointelegraph has reached out to sees any ethical contradictions here. There’s an overlap between the crypto community and the startup community, so there’s naturally been a lot of support for…