It seems we are constantly jumping from one crisis to another. We try to stop it but we can’t help it. I try to stop it from affecting things around me, but I am having a hard time overcoming the new crypto development. That’s why I sat down to write one more time. Let’s review …
Stablecoin USDC Another Crypto Rollercoaster
It seems we are constantly jumping from one crisis to another. We try to stop it but we can’t help it. I try to stop it from affecting things around me, but I am having a hard time overcoming the new crypto development. That’s why I sat down to write one more time. Let’s review the unfolding crisis together!
We all heard about Silicon Valley Bank collapsing on Friday March 10th , 2023, after two days of significant losses in a row. This was only a few days after the bank stunned the markets informing it needed to raise $2.25bn to plug losses. As a result of this “fantastic news” U.S authorities shut down the company’s operations in the stock market to control client deposits.
With Saturday’s news, stablecoins were pressured as investors rushed to transfer and move money only hours after regulators closed SVB. According to the Department of Financial Protection and Innovation of California, customers withdrew $42 billion in deposits only by EOD Thursday. Also on that day the bank had a negative balance of $958 million.
This is becoming the largest US banking failure since the 2008 crisis. Trust me it is critical, the bank literally COLLAPSED IN A WEEK!
| WEDNESDAY3/8/2023 | THURSDAY3/9/2023 | FRIDAY3/10/2023 |
| SVB discloses it needs to raise $2.25 billion to overcome its losses. | SVB customers withdraw up to $42 billion by EOD. SVB had a negative balance of $958 million. | Regulators seized SVB deposits. Circle said it has $3.3 billion in reserves at the SVB. Stablecoin USCD breaks its dollar peg. |
But, why is this affecting Crypto? SVB was linked to cryptocurrencies… and with this crisis it became the second cryptocurrency related bank to sink in a week (After Silvergate), and the FTX collapse last year, followed by Binance causing collateral damage due to a system error.
Related:
Binance’s Collateral Damage
US Cryptocurrency firm Circle’s USD Coin lost its dollar linkage or peg and fell to its historical lowest when it disclosed it has nearly 8% of its $40 billion tied to a unique lender: the Silicon Valley Bank. The bank is one of the six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash.
“We are heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the banking system. We’ve long advocated for full-reserve digital currency banking that insulates our base layer of internet money and payment systems from fractional reserve banking risk,”expressed Jeremy Allaire, Co-founder and CEO of Circle on Sunday.
Circle also said on Sunday, all its depositors with the collapsed Silicon Valley Bank (SIVB.O) and Signature Bank (SBNY.O) will be made whole and the $3.3 billion USDC reserve deposit held at Silicon Valley Bank will be fully available when banks open Monday.
Source: Circle Twitter
Source: Circle Twitter
USDC is a stablecoin, meaning that its value should be linked to a currency. In this case USDC was designed to trade at $1. However due to the crisis it dropped 0.87 cents on Saturday March 11th. This brought back nightmare memories of the Reserve Fund breaking the buck September 16, 2008, during the Great Financial Crisis.
Amazingly USDC recovered back to $1 by the end of the weekend after intervention by the U.S. Government to assure depositors they would not suffer losses on funds they had at SVB or Signature Bank.
USDC (March 6th – March 13th)
Source: CoinMarketCap
Coinbase, the U.S. crypto exchange said in a tweet it was not allowing USDC to be exchanged for U.S. dollars over the weekend while banks are closed.
Source: Coinbase Twitter
In the meantime, the UK Finance Minister and the Bank of England are working together to contain SVB damage to affect SVB UK branches. Over 250 UK tech firm chief executives signed a letter directed to UK Finance Minister expressing their concern:
“The recent news about SVB going into insolvency represents an existential threat to the UK tech sector,” the letter said. “This weekend the majority of us as tech founders are running numbers to see if we are potentially technically insolvent… Most businesses are operating on very fine margins in the current economy and the contagion from the initial insolvencies will be vast and impact the economy far beyond the tech sector,” the letter said.
European stocks on the other hand, trend 25% lower on Monday despite HSBC agreeing to buy SVB UK arm. HSBC shares fell to 35.31 as of writing.
Sounce: Yahoo Finance
Stablecoin company said that in the event the bank does not return 100% of deposits, it will cover any shortfall using corporate resources, involving external capital if necessary. This calmed down even more as major cryptocurrencies stabilized on Monday 3/13 after US authorities announced they will implement emergency measures to contain the SVB collapse.
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Author: Sara Obando
Linkedin: https://www.linkedin.com/in/sara-obando-romero-a7a21b66/
