Silicon Valley Bank logo in San Francisco, California, USA on March 10, 2023.
Staff | Reuters
US cryptocurrency firm Circle’s USD Coin lost its peg to the dollar and fell to a record low on Saturday morning after the company revealed that nearly 8% of its $40 billion in reserves was tied up in the collapsed Silicon Valley Bank.
USDC is known as a stablecoin, which means that the value of the virtual currency must be pegged to a reference currency. USDC is set to trade at $1, but fell below 87 cents on Saturday, according to CoinDesk data.
Regulators shut down SVB on Friday and seized its deposits, the biggest failure of US banks since the 2008 financial crisis. The company’s spectacular meltdown began late Wednesday when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly respected bank that had grown with its technology clients.
In a tweet on Friday, Circle said SVB had $3.3 billion in reserves remaining. The company called for the bank’s continuity and said it would follow the instructions of regulators.
The cryptocurrency industry is still picking up the pieces after FTX’s sudden collapse last year, and USDC’s break with the dollar could signal more trouble. Stablecoins, like banks, are vulnerable to runs.
By the end of Thursday, SVB customers had withdrawn a staggering $42 billion in deposits, according to California regulatory filings. By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and was unable to raise enough collateral from other sources.
If USDC holders get scared or worried that there is not enough money in the reserve, they can also rush to sell or exchange their coins.
Circle did not immediately respond to requests for comment.