USD Coin (USDC), the world’s fifth-largest cryptocurrency, plummeted to a record low of $0.87, breaking its 1:1 dollar peg due to revelations that $3.3 billion of the reserves backing the stablecoin were held at Silicon Valley Bank (SVB). However, the value of USD Coin bounced back within 24 hours and it started trading close to $0.98.
- The reason for the drop was attributed to Circle, the US company responsible for the stablecoin, revealing that $3.3 billion of the reserves backing USDC were being held at the now-collapsed Silicon Valley Bank.
- Circle, the company behind USDC, stated that it and the stablecoin are functioning without any interruptions, while they await further information about the situation of Silicon Valley Bank’s depositors.
- Paxos and Gemini, who issue stablecoins, along with Binance and Tether, have clarified that they do not have any affiliation with SVB.
- The collapse of the bank raised concerns about potential contagion, particularly in the UK, where the subsidiary unit of the bank was on the brink of being declared insolvent.
- Presently, apprehensions are mainly restricted to cryptocurrencies, but the bank holds deposits equivalent to roughly a tenth of JPMorgan and conducts business with almost half of all US venture capital-backed start-ups.
- On Friday, Santa Clara-based SVB suffered the biggest US bank failure since the 2008 financial crisis, causing global market turbulence and leaving billions of dollars belonging to companies and investors stranded.
- Concerned depositors formed lines outside SVB’s branches in hopes of withdrawing funds exceeding the $250,000 protected by federal banking regulations. The bank collapsed after failing to secure funds to fulfill withdrawal demands.
- Although fears of contagion to other areas of the financial system seemed to be contained to cryptocurrencies at the start of Saturday, SVB has business dealings with nearly 50% of all US start-ups that are backed by venture capital, as well as 44% of US technology and healthcare firms that went public last year with venture capital support. These businesses, which depend on low-cost funding and the favor of investors searching for a “unicorn,” have been adversely affected by the increase in interest rates.
- On March 10, Janet Yellen, the US Secretary of the Treasury, held a meeting with leaders from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to discuss the situation with Silicon Valley Bank. Yellen expressed confidence in the regulators’ ability to respond appropriately and stated that the banking system is resilient and that regulators have effective tools to address such events.