The USDC stablecoin is depreciating – and at an alarming rate – falling as low as $0.89, well away from its $1 peg.
Volatility is expected to continue throughout the weekend as panic builds over the aftermath of the Silicon Valley Bank collapse.
Failure of SVB is damaging the reserve status usdcWhich is issued by the circle.
Members of the consortium behind USDC stablecoin The largest exchange in the US includes Coinbase. Coinbase share price could come under pressure when the market opens on Monday.
In a tweet last night, Circle reported that USDC has a quarter of its reserves in cash. 7 Banking Partners, including Silvergate and SVB. USDC has signed a $3.3 billion deal with SVB.
The remainder of USDC reserves are held in short-dated US Treasury money market funds held at BNY Mellon Bank.
Unfortunately for many USDC depositors – who are mostly tech startups and VCs – the majority of their funds are not insured by the Federal Deposit Insurance Association (FDIC), as the guarantee only covers the first $250,000.
California’s Department of Financial Protection and Innovation took control of SVB – and made it fdic receiver — after depositors began a run on the bank by trying to withdraw $45 billion on Thursday.
USDC is the second largest stablecoin in the crypto ecosystem and an essential part of the plumbing of the industry.
How SVB was put down – which bank could be next?
Trouble started for SVB when it was forced to sell its long-standing US Treasuries at a loss.
SVB was using customer deposits to buy long-term US government bonds, which it intended to hold until maturity for a small but reliable return. This is common practice in the fractional banking model that underlies modern banking.
But to meet the demands of deposit withdrawal, SVB had to sell those bonds at a loss. Raising interest rates by the Fed means that the value of bonds falls, because bond yields and prices are inversely related.
This means that SVB’s assets were worth less than when it was purchased. it ended 1.8 billion dollars have been lost,
Again, in normal times this would not be a problem as the bonds would be held until maturity, but if a forced sale occurs those unrealized losses are realized.
To cover those losses, and future expected losses, SVB decided to issue equity.
That’s when alarm bells started ringing among its depositors.
SVB has total deposits of $175.4 billion $151 billion are uninsuredIt accounts for 85% of its deposits.
Peter Thiel’s Founders Fund advises depositors to get outWhich was the nail in the coffin for SVB – bank runs are difficult to stop.
Vulnerabilities in the Banking System Offer Bitcoin as a Store of Value
Worryingly for the banking system, SVB is not alone in having such unrealized losses on its balance sheet, as Chart from the FDIC Shows below:
Other banks may now become a target for short sellers and their depositors may panic.
California-based First Republic Bank, which caters to a wealthy customer base, saw its shares plunge as much as 15% on Friday. Other regional banks have also come under pressure.
The weaknesses of the banking system may not extend to well-capitalised large banks, but as far as smaller institutions are concerned, the regulator may have taken its eye off the ball, as seen with Silvergate and SVB .
Although it may be hard to appreciate right now, the unfolding drama really highlights a solid use case for bitcoin as a store of value.
Maybe that’s why there is no news of the fall in the price of bitcoin Silicon Valley Bank The failure, though may be because the Silvergate news before this was enough to drive sellers out.
Nevertheless, the bitcoin price has held up well over the past 24-hours, but market participants expect more volatility ahead.
Bitcoin has rallied 64% from its near-term low and has only pulled back 20% so far.
At this point traders could be forgiven for thinking that bitcoin is a stable coin compared to USDC.
Also, bitcoin holders will take comfort from the fact that it has a major area of support near the volume profile line of control (red line) around the $16,000 level.
USDC and DAI in Trouble – Which Top Stablecoins Are at Risk?
Traders and crypto firms reacted to the news of USDC reserve exposure to SVB by exiting their positions in the stablecoin. Tether (USDT),
USDT is the original stablecoin, but it has never fully audited its reserves, yet it is considered more secure than USDC.
As a result of the buying pressure, Tether has now moved its peg in the positive direction, with a value of $1.01.
Other stablecoin issuers have rushed to make statements saying they have no SVB exposure, including Gemini, the issuer of Paxos, Binance, BUSD.
Tether CTO Paolo Ardoino published a statement stating that USDT has no SVB exposure.
The explosion of USDC is having far-reaching effects in the crypto space that could turn the crypto winter into an Ice Age crisis.
decentralized exchange curve has seen it 3pool The stablecoin pool gets wildly out of balance. DAI, USDC and USDT are held in approximately equal proportions – but this is in normal times.
Now only about 6% is in USDT while USDC and DAI each make up over 40% of the pool.
Midwife Heavily collateralized by USDC and it is still being liquidated – currently changing hands for $0.90 instead of $1. DAI is the 4th largest stablecoin.
Ethereum gas fee spike
Another direct result of the latest twist in the crypto crisis Ethereum Gas Fees Rising to 300+ Gwei,
This is comparable to transaction costs on the Ethereum blockchain, which at one stage was forcing Uniswap users to pay an average of $90 to transfer funds.
Average Gwei at the time of writing is 83 but could rise again as the US Saturday session opens.
The Ethereum chain is becoming congested as various crypto firms attempt to convert their funds to protect themselves from the SVB contagion.
Yes! A merchant paid $2m to get $0.05 USDT
Such is the level of dislocation in the market, a trader who was betting in a liquidity pool tried to exit but didn’t time his draw, similar to setting a limit order in equities.
As a result, the trader became a victim of a so-called Maximum Extractable Price bot. The transaction cost was $2,080,468.85 to get $0.05 of USDT:
Buy USDC today and you could make a lot of money – you could also lose it all
There are huge amounts of money to be made for those who are not afraid of high-octane risks.
Arbitrageurs can buy USDC in its unregistered state and then redeem it on Monday for $1, pocketing the difference.
But of course it’s incredibly risky because no one knows what the FDIC will do about the uninsured deposits in the SVB, of which the USDC reserves to pay for are a part.
Some would argue that the taxpayer should have no business bailing out a bank that is engaged in building a deposit base that lacks diversity due to its proliferation of tech startups and VC deposits.
Michael Egorov, founder of Curve Finance, in the comments Bloomberg Told that everything will be fine, but will he say this or not?
“I think we will see a lot of volatility in the USDC price over the weekend because USDC redemptions will not work at that time – banks do not work on weekends,”
He then added optimistically: “However, conditions may improve once redemptions begin on Monday, with some traders buying cheap USDC and redeeming 1:1 with USD.”
Who will buy SVB? Elon Musk?
On Monday, market participants will be watching to see how the FDIC intends to handle the issue of uninsured deposits. If a buyer is found for the bank, the same will happen.
However, large banks will be wary of engaging with SVBs during times of great uncertainty.
Elon Musk hinted perhaps playfully that he might be interested in buying the bank.
But Kasturi has not followed them form tweeted statements,