Circle’s Allaire Faults US Financial Risks After $13 Billion Drop in Stablecoin USDC
(Bloomberg) — A push by investors to “de-risk the U.S.” amid banking sector and regulatory challenges contributed to the drop in the market value of stablecoin USD Coin, according to the CEO of the token’s issuer.
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“We see tremendous concern globally about the U.S. banking system,” Jeremy Allaire, chief executive of Circle Internet Financial Ltd., said in an interview on Bloomberg Television on Wednesday. “We see concern about the regulatory environment in the United States.”
USD Coin temporarily lost its market anchor of $1 during the banking crisis this year, but has since stabilized. However, the token’s total market capitalization has continued to fall and now stands at around $30.7 billion from a peak of more than $56 billion in 2022, data from CoinGecko shows.
Stablecoins are central parts of the crypto sector where investors often park funds to use in trading. They are intended to hold a constant value, typically $1, and are often backed by reserves such as cash and bonds. Regulators have stepped up scrutiny of stablecoins due to concerns about the risks they could pose.
The market value of the USD Coin – also known as USDC – has fallen around $13 billion since US banking problems flared up in March. The token was temporarily removed after it emerged that $3.3 billion of the reserves used to back the stablecoin were in the collapsed Silicon Valley Bank.
Officials later said depositors will get their money back, part of an effort to bolster confidence in the U.S. financial system. Circle also vowed to cover any spare shortages. It helped the USDC restore its $1 value in crypto markets.
Clampdown in the US
In the US, crypto firms are struggling after a sharp regulatory crackdown following the collapse of the FTX digital asset exchange and a deep market rout last year. Blowups like FTX and market crashes left investors with heavy losses, leading to an outcry about the dangers of digital assets.
The US Securities and Exchange Commission claims that most tokens are unregistered securities and that too many digital asset businesses have failed to comply with the agency’s requirements.
Crypto companies are asking US politicians to put legislation in place to clarify the status of crypto assets. But prospects for near-term implementation of the stablecoin rules have dimmed, hampered by partisan divides.
“Critical Moment”
“It’s a critical moment here in the United States, and as I like to say, it’s really a moment for Congress to step up,” Allaire said.
He said questions are being raised about the competitiveness of the US dollar amid the development of blockchain technology and internet-based currencies.
The European Union, Hong Kong, Singapore and the Middle East are making progress with crypto regulations, while “the United States is behind right now,” Allaire said.
USDC is backed by cash and short-dated US Treasuries and remains the second largest token in the $132 billion stablecoin sector. The biggest is Tether, which has cemented its No. 1 position with a market cap of nearly $82 billion, despite facing scrutiny over the transparency of its reserves.
(Updates with more comments from Allaire from the ninth paragraph)
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