Crypto Shaken As SVB Exposure Surpasses Stablecoin’s $36 Billion

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USD Coin, the second-largest stablecoin in the crypto sector, fell off its dollar peg on Saturday, trading as low as 81.5 cents.

The USD Coin fell from its peg to the dollar on Saturday, hitting a low of 81.5 cents after the collapse of Silicon Valley Bank. The USD Coin is the second largest stablecoin in the crypto industry. Valley Bank. For more financial information, visit the News24 Business homepage.

The second-largest stablecoin in the crypto sector fell off its dollar peg on Saturday, trading as low as 81.5 cents, hurt by exposure from its issuer Circle Internet Financial Ltd., to Silicon Valley Bank in bankruptcy.

USD Coin, or USDC, is a key component of the crypto markets and is believed to hold a constant value of $1, fully backed by cash reserves and short-term treasury bills. But $3.3 billion (~R60 billion) of that roughly $40 billion stock belongs to Silicon Valley Bank, which just became one of the biggest US bank failures in recent history.

Regulators seized the bank on Friday, and investors are waiting for more clarity on the return of deposits. In this vacuum, USDC fell below $1, trading at around 90 cents at 3:28 p.m. in Singapore on Saturday. Smaller stablecoins such as DAI and Pax Dollar also fell off their predicted pegs, a sign of broader jitters.

READ | Why Silicon Valley Bank caused panic around the world

Concerns have yet to spread to the top stablecoin, Tether, which was holding at $1. Tether has already come under scrutiny for its reserves. The broader crypto markets are having a painful week but were flat on Saturday, with Bitcoin little changed.

Circle Chief Strategy Officer Dante Disparte described the fall of Silicon Valley Bank as a “black swan failure” in the US financial system, saying in a tweet that without a federal bailout there would be ” wider implications for business, banking and entrepreneurs.”

USDC has a circulating supply of around 41 billion tokens and a market value of around $36 billion (~R660 billion), according to data from CoinGecko. A net amount of $2 billion (~R36.6 billion) of USDC has been redeemed in the past 24 hours, according to blockchain research firm Nansen. Data compiled by Bloomberg indicated the USDC was trading as low as 81.5 cents.

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The Coinbase Stage

Stablecoins like USDC are meant to hold a fixed value against another highly liquid asset like the US dollar. They come in a variety of forms, and some, like Circle’s, are backed by reserves of cash and bonds. Investors often place funds in stablecoins when moving between crypto transactions.

As the USDC sell-off worsened, US-based crypto exchange Coinbase Global Inc. said it would “temporarily suspend” the conversion of USDC into US dollars over the weekend and would resume on Monday when the banks open.

The fall of the USDC has had a ripple effect on decentralized finance apps that allow users to trade, borrow, and lend coins and which tend to rely heavily on trading pairs involving the stablecoin.

“Unless there is a concrete bailout this weekend, I think the markets will be lousy again next week,” said Teong Hng, managing director of crypto investment firm Satori Research. , about the failure of SVB.

Crypto’s Woes

The crypto sector was already reeling from a protracted rout that has seen the value of digital assets plummet by $2 trillion (~R36.6 trillion) since November 2021, precipitating a series of implosions such as the stablecoin TerraUSD, the hedge fund Three Arrows Capital and the FTX exchange.

The TerraUSD token – known as USDT – tried to use a mix of algorithms and trader incentives involving sister token Luna to hold its value. The $60 billion (~R1 trillion) wipe from this system has heightened global regulatory scrutiny of stablecoins.

“I think the market priced USDC the way it priced USDT around the Luna crash,” said Haohan Xu, CEO of Apifiny, an institutional trading platform. “He’s driven by Circle’s exposure to SVB and Coinbase shutting down its USDC conversion feature.”

try to reassure

On Friday, crypto firms including Binance and Tether took to Twitter in an attempt to reassure customers of the risks posed by the failing bank.

Changpeng Zhao, CEO of Binance, the largest digital asset exchange, tweeted that the company was not exposed and its funds were safe.

Paxos Trust Co., the issuer of Pax Dollar and crypto exchange, Gemini, said it has no relationship with the bank, according to statements on their official Twitter accounts. Tether CTO Paolo Ardoino said in a tweet that the largest stablecoin has no exposure to SVB.

In contrast, bankrupt crypto lender BlockFi has approximately $227 million (~R4.16 billion) in an account with the bankrupt bank, according to a court filing.

–With the help of David Pan.

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