Silicon Valley’s abrupt crash on Thursday has sent shockwaves through the hearts of many crypto enthusiasts. It became the second-largest bank in US history to collapse. As part of its ripple effect, stocks have dropped, and the USDC stablecoin is de-pegging, confirmed by Circle.
On Friday, Circle announced it had failed to remove the $3.3 billion held in reserves for USDC from the bank. Circle Internet Financial’s USDC stablecoin, recognized as the second-largest stablecoin in the world, has hit an all-time low as the Silicon Valley collapse contagion keeps spreading like wildfire.
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The USDC/USDT has dropped below $0.90, a record-breaking low that beats the previous all-time low recorded in April 2021. As of 03:54 WAT today, the price had recovered to around $0.984.
The USDC stablecoin is not the only victim. Major cryptocurrencies like Bitcoin and Ethereum are in dire straits, with selloff pressure nearing $20,000 and $1,4000, respectively. As revealed by Circle, an undisclosed portion of USDC’s cash reserves is stored at the bank, meaning the money directly behind stablecoin’s value is now dormant.
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Before this event, USDC maintained a 1-to-1 peg with the U.S. dollar, which was the normal routine. Over time, stablecoins have been regarded as a crucial part of the crypto ecosystem, as they provide stability when the market’s vulnerability is at play. However, when they drop from the fiat asset they are pegged to, there are legitimate concerns about their financial foothold.
On Friday, Circle tweeted after failing to respond to numerous requests for comment: “Circle and USDC continue to operate normally.”
Major exchanges react to USDC’s drop after Silicon Valley crash
Silicon Valley Bank is one of the main banking partners of Circle. To many, the crash came as a bolt from the blue. Major cryptocurrency exchanges have begun to react to this event. Binance and Coinbase have announced a pause to conversations around the stablecoin. Binance revealed a temporary halt to auto-conversations from USDC to BUSD.
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Coinbase stated that it had paused USDC: USD conversions over the weekend. When banks reopen on Monday, the exchange will reopen for conversions. The pause reflects the turmoil that has engulfed the crypto industry’s second-largest stablecoin since Silicon Valley Bank’s demise on Friday. Traders redeemed $1.6 billion in USDC, lowering its total supply and making assumptions about its stability.
It remains to be seen what happens with SVB, but Circle believes its survival is critical because it is “an “important bank in the US economy.” In a tweet, the USDC issuer stated:
“Like other customers and depositors who relied on SVB for banking services, Circle joins calls for the continuity of this important bank in the U.S. economy and will follow the guidance provided by state and federal regulators.”
Circle also has accounts with Silvergate Bank, Signature Bank, and other crypto-friendly financial institutions. The conditions presently are not ideal for the crypto ecosystem. This could be another defining event capable of provoking the doom suffered caused by FTX’s downfall in 2022. In the coming days, the severity of this crash will become clear.
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