Crypto group Circle admits $3.3 billion exposure to failed Silicon Valley Bank

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Circle, the operator of one of the world’s largest stablecoins, said $3.3 billion of its reserves were trapped in Silicon Valley Bank, causing its token to drop in value as the market crypto is reeling from the failure of two US banks this week.

Circle’s announcement overnight on Friday prompted the company’s USDC crypto token to lose its peg to the dollar.

US exchange Coinbase said it was temporarily suspending conversions between USDC and the US dollar. Rival exchange Binance also said it would suspend automatic conversions from USDC to BUSD, a Binance-branded stablecoin.

Circle called for an urgent federal bailout for SVB.

The collapse of SVB, the second largest bank failure in US history, is beginning to spill over to customers, in another blow to the crypto market still recovering from a crisis of confidence the last year which took away many of its biggest names.

Earlier this week, Silvergate, a US bank that had courted crypto clients, said it would halt operations after a run on deposits.

Stablecoins play a key role in connecting traditional and crypto markets, and traders use them like crypto-native cash or dollars to transact. Most track the value of a major currency such as the dollar one to one. Stablecoin operators typically earn interest on the traditional assets that underpin their tokens, with a higher supply in circulation increasing revenue.

Circle’s USD Coin is the second-largest stablecoin in the crypto market with $42 billion in circulation, according to company data.

The company said it holds a quarter of USDC’s reserves in cash with six banking partners, including SVB. The majority of its $40 billion reserves are held in short-term US government bonds and other US banks.

In a blog post on Saturday, Circle said USDC liquidity operations will resume when banks open on Monday. The company added that it would use company resources, involving outside capital if necessary, if SVB does not repay 100% of deposits.

“It’s not just the cryptocurrencies themselves that are under pressure: now the banks supporting the industry itself are failing. And stablecoins like USDC are the gateway in and out of crypto for many investors,” said Charley Cooper, former chief of staff at the Commodity Futures Trading Commission, the US regulator.

“The threat to even sustained reserves [stablecoin] model called into question the viability of the intersection between crypto and traditional finance,” he said.

Dante Disparte, Circle’s chief strategy officer, warned on Saturday that the company was protecting its stablecoin from a “black swan failure in the US banking system.”

“SVB is a critical bank in the US economy and its failure – without a federal bailout – will have broader implications for businesses, banks and entrepreneurs,” he tweeted.

Circle said it would continue to operate as normal pending clarification from US regulators on the impact of SVB’s failure on its depositors, Circle and USDC. He did not immediately respond to a request for comment.

Since the collapse of SVB, the USDC token has traded as low as 88 cents on the dollar, according to industry price-tracking website CoinMarketCap.

Circle held cash in several US regulated financial institutions, including Silvergate and SVB, it disclosed.

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