© Reuters. FILE PHOTO: The SVB (Silicon Valley Bank) logo is seen through broken glass in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
LONDON (Reuters) –
By Elizabeth Howcroft and Rishabh Jaiswal
Stablecoin (USDC) lost its peg to the dollar and fell to a record low on Saturday after Circle, the US firm behind the coin, revealed that some of the reserves backing it were held at Silicon Valley Bank.
Circle holds $3.3 billion of its $40 billion USDC reserves in failed lender Silicon Valley Bank, the company said in a tweet on Friday.
The coin broke its 1:1 peg with the dollar and fell as low as $0.88 shortly after 0800 GMT on Saturday, according to market tracker CoinGecko. It rallied slightly to trade around $0.90 at 1120 GMT.
Silicon Valley Bank collapsed on Friday in the biggest US bank failure since the 2008 financial crisis, rocking global markets and stranding billions of dollars belonging to companies and investors.
Circle said in a tweet Friday that he and USDC “continue to operate as normal” as the firm awaits clarity on what will happen to Silicon Valley Bank depositors.
Circle did not immediately respond to a request for comment on the dollar peg sent outside of US business hours.
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies, those backed by a central government rather than a physical commodity such as gold, for example through a 1:1 peg to the dollar. US.
Used in cryptocurrency trading, they have increased in value in recent years. USDC is the second largest stablecoin with a market capitalization of $37 billion. The largest, has a market capitalization of $72 billion, according to CoinGecko.
The USDC price is generally holding close to $1, making Saturday’s drop unprecedented. According to data from CoinGecko, its previous all-time low was around $0.97 in 2018, though in 2022 it fell to just below $0.99 as cryptocurrency markets were rocked by the collapse of cryptocurrency hedge fund Three Arrows. Capital.
Traders have been on guard this week for signs of contagion in the financial sector and beyond from the troubles at Silicon Valley Bank and crypto-focused Silvergate, which this week revealed plans to shut down trading and liquidate voluntarily.
Boston-based Circle said last week that it had moved a “small percentage” of the USDC reserve deposits it held at Silvergate to its other banking partners.
The chief executive of cryptocurrency exchange Binance said in a tweet on Friday that he had no exposure to Silicon Valley Bank, as did Tether chief executive Paolo Ardoino.
Stablecoin issuer Paxos and cryptocurrency exchange Gemini also tweeted that they have no relationship with the bank.
