Sudden Circle Depeg Panic Could Be About To Take Down The Price Of Bitcoin, Ethereum, BNB, XRP, Cardano, Dogecoin, Polygon, And Solana

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BitcoinBTC, ethereum and other major cryptocurrencies are braced for extreme volatility after Circle’s $43 billion USDCUSDC stablecoin lost its US dollar after a wild week for crypto.

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The price of bitcoin fell 10% this week due to the failure of crypto-enabled bank Silvergate, wiping $100 billion from the combined crypto market as the price of the top ten ethereum cryptocurrencies, BNBBNB , XRPXRP, cardano, dogecoin, polygon and solana plummeting.

Now, the crisis at startup lender Silicon Valley Bank (SVB), where stablecoin issuer Circle held some of its USDC cash reserves, is threatening to wipe out the second-largest stablecoin by market capitalization.

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“Silicon Valley Bank is one of six banking partners Circle uses to manage the approximately 25% share of USDC reserves held in cash,” Circle said on Twitter, compounding a nearly 10% decline from relative to its peg to the US dollar. “While we await clarification on the impact of SVBVB’s FDIC receivership on its depositors, Circle and USDC continue to operate as normal.”

Circle has $3.3 billion of the $40 billion backing its stablecoin deposited at SVB. SVB deposits up to $250,000 are guaranteed by the Federal Deposit Insurance Corporation (FIDC), potentially leaving Circle and other depositors shelled out.

“FIDC deposits are only insured up to $250,000 and in the event of a bank run, depositors may lose out,” Markus Thielen, head of research and strategy at Matrixport, said in a mailed note. electronic.

In a separate blow, major US crypto exchange CoinbaseCOIN, which issues USDC through a joint venture with Circle, announced that it had suspended USDC to US dollar conversions, posting on Twitter that it would “temporarily” suspend conversions. while banks are closed on weekends.

“Circle is currently protecting USDC from a black swan failure in the US banking system,” Dante Disparte, Circle’s chief strategy officer, said on Twitter. “Silicon Valley Bank is a critical bank in the US economy and its failure without a federal bailout will have broader implications for businesses, banks and entrepreneurs.”

California-based SVB was taken over by regulators and shut down on Friday after panic spread among depositors who withdrew about $40 billion from the bank and efforts to raise new capital failed.

The bank’s woes are believed to have started when the US Federal Reserve began raising interest rates last year, wiping out the value of its mortgage bonds and US Treasuries. This week, Fed Chairman Jerome Powell told lawmakers he sees interest rates beating market expectations this year.

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Meanwhile, Circle’s banking troubles, on top of the crypto crisis sparked by the collapse of Silvergate earlier in the week, have sent bitcoin transaction fees soaring as merchants frantically try to secure their crypto.

“Bitcoin network transaction fees are very high and indicate panic,” Thielen said, adding that the largest stablecoin tie has managed to maintain its peg to the dollar for now.

“Of the three major stablecoins, we now have one standing tall and of course it’s the most important. Tether’s USDTUSDT which weathered the Paxos-Binance BUDBUSD storm in February and is also weathering the Circle storm USDC.”

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