The fall in the price of a stable USD cryptocurrency after the collapse of Silicon Valley Bank has stunned everyone. Circle announced that there was a total holding of around $3.3 billion and has dropped its peg to the dollar.
The news of the collapse of Silicon Valley Bank has rattled financial markets. The executive said that he was trying to withdraw its reserves from SVB, but it was not withdrawing. The news of Silicon Valley Bank has surprised everyone.
Key Takeaways
- Silicon Valley Banks claim their first victim in the USDC stablecoin.
- The fifth-largest cryptocurrency lost its US dollar peg because the investors pulled themselves out.
- The stablecoin problems will continue as a headache for the entire crypto sector.
Which is Silicon Valley Bank?
Silicon Valley Bank is a commercial Bank that provides financial services to technology and life-science companies, venture capitalists, and private equity firms. The bank was founded in 1983, and its headquarters is in Santa Clara, California.
SVB offers a range of banking products and services, including deposit accounts, cash management, credit facilities, and international banking services. The bank also provides various financing options, including venture debt, asset-based lending, and project financing.
In addition to its banking services, SVB also offers industry insights, research reports, and networking events to help its clients stay informed about the latest trends and developments in the technology and life science sectors.
What to expect next?
The Federal Deposit Insurance Corporation has taken over Silicon Valley Bank, whose collapse is the second-largest bank failure in US history.
SVB is expected to reopen under a new name with billions of deposits. All the amount is under the control of FDIC.
However, FDIC assures that they will return only $250,000 per client and bank. The bank said that they would provide certificates to the uninsured funds with a limit of $250,000. They would be the first to receive their amount when the bank is in receivership.
The process of liquidating the assets will be long, and no one can predict how much will be recovered.
Moreover, the gathering fallout followed the reports that SVB didn’t have a Chief Risk Officer in its place up to the collapse. Also, 90% of their over $212 billion deposits are uninsured.
SVB was under the burden of using short term money from the depositors to invest in the assets that could not be swiftly unloaded to meet customers’ withdrawal demands when the new depositor funding dried up.
SVB Chief Executive Officer Greg Becker said that the situation of collapse arises because of higher interest rates, public and private market pressure, and cash burn levels from our clients.
Circle also tweeted that USDC will normally work as it does. At the same time, the firm will wait for the response from SVB about what will happen to their depositors.
Impact of Silicon Valley Bank Collapse on USDC
USDc was launched in 2018 as a stablecoin, which the central bank indexed to a currency. It is the second largest stable cryptocurrency with a total volume of around $40 billion. USDC is behind Tether only.
Stablecoins are backed by equivalent reserves in the available assets, either cash or convertible financial securities.
Between Friday and Saturday, the USDC price fell to its lowest level, dropping to 87 cents before recovering to 94 cents. However, some other stablecoins also suffered with the action of Silicon Valley Bank.
The Coinbase cryptocurrency exchange platform said that there was a suspension of conversions of USDC into BUSD.
It was recognized that over $25 billion in USDC was exchanged on the Coinbase platform in 24 hours. It is an enormous volume as compared to overall holdings.
Stablecoin Investors Face More Turmoil
USDC rebounded again after Circle said it would recover the shortfall and start redemption from Monday.
It is a significant headache for the cryptocurrency industry, as another stablecoin is in trouble. The stablecoins like Tether and USDC have experienced shading of investor inflow because they are moving their funds from Binance’s USDC.
Paxos was also involved in a specific partnership for minting the stablecoins at Binance. Unfortunately, the regulators forced the company to cease the agreement, and USDC lost more than 50% of its market cap. The latest problems with USDC kept the investors in deep trouble because they needed more options to park their crypto holdings.
Final Words
When the Silicon Valley Bank could not honour all the requests, FDIC had to jump to take complete control. As a result, the stablecoin market has been under intense scrutiny by regulators since the $40 billion collapse of Terra USD stablecoin last May.
This latest turmoil creates a lot of uncertainty among investors about whether they should invest in digital currencies. The Federal Reserve Chairman said that such turmoil and risks don’t consider digital currencies well-aged in the light of the Silicon Valley Bank collapse.
FAQs
Q. Is USDC backed by banks?
Ans. All the cash reserved for USDC is now parked with the Bank of New York Mellon Corporation after the collapse of Silicon Valley Bank.
Q. How much FDIC covers if any bank fails?
Ans. Deposit Insurance is one of the main benefits of securing deposits in the bank. FDIC protects your money if a bank fails, and the standard insurance amount is $250,000 per depositor for each ownership category.
Q. Is Silicon Valley Bank publicly traded?
Ans. Yes, Silicon Valley Bank is a publicly traded company. Its stock is listed on the Nasdaq Stock Market under the ” SIVB ” ticker.
Q. What is the history of Silicon Valley Bank?
Ans. SVB was founded in 1983 by a group of entrepreneurs and venture capitalists who recognized the need for a bank that understood the unique needs of the technology industry. Since then, the bank has become a leading provider of financial services to the innovation economy.
