Silicon Valley Bank logo is located in San Francisco, California, USA on March 10, 2023.
Staff | Reuters
US cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning after the company revealed it has tied up nearly 8% of its $40 billion in reserves with collapsed lender Silicon Valley Bank.
USDC is known as a stablecoin, which means that the value of the virtual currency must be linked to a reference currency. USDC was designed to trade at $1 but fell below 87 cents on Saturday, according to data from CoinDesk.
Regulators closed SVB on Friday and seized deposits in what has become the largest U.S. bank failure since the 2008 financial crisis. The company’s spectacular implosion began late Wednesday when it surprised investors with news that it had lost $2.25 billion. had to pick up to strengthen his balance sheet. What followed was the rapid collapse of a highly respected bank that had grown along with its technology clients.
In a tweet on Friday, Circle said it has $3.3 billion in remaining reserves at SVB. The company called for the bank’s continuity and said it will follow guidance from regulators.
The cryptocurrency industry is still picking up the pieces after last year’s sudden collapse of FTX, and USDC’s break with the dollar could indicate more trouble ahead. Stablecoins, like banks, are vulnerable to runs.
SVB customers have withdrawn a whopping $42 billion in deposits by the end of Thursday, according to a California regulatory filing. By the end of the day, SVB had a negative cash balance of $958 million, according to the filing, and failed to collect sufficient collateral from other sources.
If USDC holders get scared or worried about not having enough money in reserve, they may also rush to sell or exchange their coins.
Circle did not immediately respond to requests for comment.