Crypto Should Crypto Holders Be Worried About SVB Collapse And USDC Depeg

Last Updated on 4 months by newseditor

Circle Internet Finance Ltd.’s flagship cryptocurrency, designed to replicate the value of the US dollar, fell substantially after the company revealed it had $3.3 billion invested in the failing Silicon Valley Bank. Consequently, Circle’s USD Coin, which the US dollar is backing, tumbled to a record low, dropping below 87 cents on Saturday morning, according to CoinDesk data. It’s important to note that Circe Financial’s USDC stablecoin is currently the second-largest stablecoin.

SVB Collapse And USDC Depeg

The crypto market has recently been agitated by reports of the imminent SVB collapse and the depegging of the USDC stablecoin. A stablecoin is a virtual currency meant to trade exactly at $1. The US dollar and short-term government debt back USDC, and people consider it to be at the center of cryptocurrency trading. In the first place, breaking USD Coin’s peg to the dollar has the potential to shock the cryptocurrency market, which is still reeling from the collapse of FTX. As a result, cryptocurrency investors are understandably concerned about the implications for their investments. 

Many tech businesses with venture capital backing used SVB’s business banking services. Many of those businesses moved to withdraw their capital from SVB when rumors started to circulate that the bank might not be able to pay its debts because the government bonds it had bought in recent years were now rapidly depreciating in value as a result of recent interest rate increases. The bank run was the tipping point, and many SVB clients were unable to transfer their money before the bank went into receivership and halted withdrawals.

Many crypto companies were among SVB’s partners, but none was more important to this event than Circle, the issuer of the renowned stablecoin USDC. USDC issuer Circle had $3.3 billion deposited in Silicon Valley Bank, representing around 8% of the dollars backing USDC. Concerns about the deposits caused USDC to lose its peg over the weekend; while the peg has now regained, the incident highlights concerns about off-chain counterparty risk for stablecoin issuers and other crypto enterprises.

The entire market capitalization of stablecoins has been increasing in recent months, according to the latest figures. This suggests that stablecoins will remain a popular alternative for cryptocurrency investors looking to protect their investments from market volatility. Nonetheless, cryptocurrency holders should be aware that stablecoins are not without risk and should utilize it with caution. 

Takeaways

It’s crucial to maintain perspective even though the imminent collapse of SVB and the depegging of USDC are undoubtedly reasons for alarm among cryptocurrency holders. There is no immediate threat from these problems. Yet, holders of cryptocurrencies should remain vigilant for market fluctuations that may affect their investments. Before making any investment decisions, you should proceed with caution and complete your own research.

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