BREAKING: USDC Stablecoin Breaks Dollar Peg Due To $3.3 Billion SVB Exposure• March 11, 2023 11:35 am • Comments
The second largest stable coin in the crypto industry, USDC, just lost its dollar peg after it revealed that it had around $3.3 billion in exposure to the Silicon Valley Bank collapse.
According to the latest data, USDC had around 8% of its $40 billion of reserves tied up to SVB which has caused investors to start panic selling.
At the time of writing, USDC is currently trading at around 92 cents which is the lowest point that it has been since the inception of the stable coin.
The implications of this on the broader crypto industry will likely be tremendous given that the USDC stable coin represents a large portion of crypto trading volume.
The collapse of the Silicon Valley Bank, the 16th largest bank, will also likely have impacts on both the traditional finance industry and crypto.
1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.
— Circle (@circle) March 11, 2023
Regulators shuttered SVB Friday and seized its deposits in what has become the largest U.S. banking failure since the 2008 financial crisis. The company’s spectacular implosion began late Wednesday when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.
In a tweet Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the continuity of the bank and said it will follow guidance from regulators.
The cryptocurrency industry is still picking up the pieces after the sudden collapse of FTX last year, and USDC’s break with the dollar could signal more trouble ahead. Stablecoins, like banks, are vulnerable to runs.
SVB customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources.
Whether or not Circle will be able to recover those billions of assets that are tied to the SVB crisis is still unknown and many are speculating that a bailout might be needed to save the bank.
The broader crypto market also had a reaction to the situation as the total market cap of crypto had decided to drop significantly due to the collapse.
BTC has resumed its bearish trend and is currently recorded to be trading at around the $20k mark.
The SVB always has the option where the Federal Reserve or some other central banking authority can step in to save depositors from losing their assets.
However, the situation is unclear for crypto as the industry does not have any centralized authority that oversees the health of the system, especially for stable coins like USDC.
There is a non zero chance #USDC goes to zero:
1️⃣ USDC market cap crashes to a few billions due to redemptions
2️⃣ The USDC mCap that remains is « backed » by cash held hostage in Silicon Valley Bank
3️⃣ USDC peg crashes hard as a result
Unless SVB is bailed out this is likely. pic.twitter.com/H6hfuKKPdX
— Duo Nine ⚡ discord.gg/ycc (@DU09BTC) March 11, 2023
Stablecoin prices wildly swung and gas fees soared as investors scrambled to move money around hours after regulators shut SVB amid a run on the bank, which had ties to crypto. It was the second crypto-linked bank to go under this week.
Circle Internet Financial’s USDC stablecoin massively depegged from its intended $1 price – a harrowing development for a product designed as a place for investors to safely park money.
The USDC/USDT pair (which tracks Circle’s coin versus the bigger one issued by Tether) sank as low as $0.89 on the Kraken exchange at 03:49 UTC on Saturday – far lower than it ever got amid the market stresses that followed the FTX debacle in November.
The financial services company confirmed late Friday that about $3.3 billion of the reserves backing the world’s second-largest stablecoin were tied up at SVB.
Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.https://t.co/NU82jnajjY
— Circle (@circle) March 10, 2023
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