While Silicon Valley Bank (SVB) is in turmoil, the crypto company Circle has announced that part of its assets are housed in this banking institution. The announcement caused panic in the market, and a significant decline in the value of USDC. The stablecoin issued by Circle is now trading at less than $1. Binance, Coinbase, Coinbase, Huobi, …, several major crypto players have moved away from USDC. Will the second largest stablecoin meet the same fate as UST?
Circle funds blocked at Silicon Valley Bank (SVB)
The Crypto society, Circle, the issuer of the USDC stablecoin, is going through tough times. In an announcement, Circle said that part of its cash is kept at the Silicon Valley Bank. Yet this banking institution is on the verge of collapse. Closed by the American authorities on March 10 due to financial difficulties, the Silicon Valley Bank is now under the control of the Federal Deposit Insurance Corporation (FDIC).
The announcement of Circle quickly aroused concerns as the memories of FTX are still alive. The fact that the company has not clearly determined the amount of its blocked funds quickly reinforces the panic.
The company then quickly announce that $3.3 billion are blocked at Silicon Valley Bank. This represents more than 8% of Circle’s reserve, valued at $40 billion.
According to several credible sources, another part of Circle company fund is at Silvergate Bank. This banking institution bankrupts a few days ago. Circle has yet to confirm if its funds are indeed there. Nevertheless, everything suggests that this is the case. Indeed, during the bankruptcy of this bank, Circle indicated on Twitter that it excluded certain transactions involving Silvergate Bank.
USDC Goes Bad and Crypto Players Walk Away
The announcement of the freezing of Circle funds at the Silicon Valley Bank (SVB) directly impacted the USDC stablecoin issued by the company.
While it is backed to the dollar and normally equals $1, USDC is now trading below the dollar. At the time of writing this article, the USDC traded at $0.88 ! The capitalization of the stablecoin which was at more than 40 billion before the crisis, fell to 35 billion.
Will USDC’s descent into hell stop? Um… to be seen. Several crypto players have walked away from the USDC.
The largest cryptocurrency exchange, Binance has temporarily suspended the USDC to BUSD conversion. The platform justifies its decision by the high USDC inflows and the increasing load to support the conversion.
The cryptocurrency exchange Coinbase also reacted. The platform of Brian Armstrong has discontinued the conversion function between the US dollar and USDC.
Coinbase reassures that the suspension will only last this weekend. When banks reopen on Monday, the USDC-USD conversion function will be restored.
Will it be done? We are waiting for Monday to confirm it. The list of crypto companies distancing themselves from USDC could grow.
Several major holders of the USDC stablecoin have also traded it for other cryptocurrencies. The exchange Huobi swapped $100 million USDC for $100 million DAI. Justin Sun, the CEO, has for its part took of $82 million in USDC from Aave. He then traded them for $82 million worth of DAI. The wave of converting USDC to other cryptocurrencies continues as information about Circle’s troubles becomes known.
Under current conditions, it is difficult to envision a salvation for Circle and its USDC stablecoin. With the bankruptcy of Circle’s banking partners and the massive withdrawal of the USDC, the risk that the second largest stablecoin will end up as Do Kwon’s UST is real! However, unlike UST, USDC holders could get their funds back. Indeed, Silicon Valley Bank is duly insured with the Federal Deposit Insurance Corporation (FDIC). This state agency assured that it would keep the assets of the Silicon Valley Bank to return them later.
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