Crypto group Circle admits $3.3 billion exposure to failed Silicon Valley Bank
Circle, the operator of one of the world’s largest stablecoins, has said that $3.3 billion of its reserves are trapped in Silicon Valley Bank, triggering a drop in the value of its token as the crypto market reels from the failure of two US banks this the week.
The announcement by Circle overnight on Friday caused the company’s USDC cryptocurrency to lose its link to the dollar.
US exchange Coinbase said it temporarily halted conversions between USDC and US dollars. Rival exchange Binance also said it would stop automatic conversions of USDC to BUSD, a stablecoin that carries the Binance brand.
Circle called for an urgent federal rescue plan for SVB.
The collapse of SVB, the second largest bank failure in US history, is beginning to trickle down to customers, in a further blow to the crypto market which is still recovering from a crisis of confidence last year that took down many of the biggest names.
Earlier this week, Silvergate, a US bank that had been courting crypto customers, said it would wind down operations after a run on deposits.
Stablecoins play a key role in connecting traditional and crypto markets, and traders use them like cash or crypto-native dollars to make trades. Most people track the value of a major currency like the dollar one-to-one. Stablecoin operators typically earn interest on the traditional assets underlying their tokens, with a higher supply in circulation increasing revenue.
Circle’s USD Coin is the second largest stablecoin in the crypto market with $42 billion in circulation, according to company data.
The company said it holds a quarter of its USDC reserves in cash with six bank partners, of which SVB was one. The rest of the $40 billion in reserves are held in short-dated US Treasuries and other US banks.
“It’s not just the cryptocurrencies themselves that are under pressure: now the banks that support the industry are failing. And stablecoins like USDC are the way in and out of crypto for many investors,” said Charley Cooper, a former chief of staff at the Commodity Futures Trading Commission, the US regulator.
“The threat to even the reserve-supported [stablecoin] The model has called into question the viability of the intersection of crypto and traditional finance,” he said.
Dante Disparte, Circle’s chief strategy officer, warned on Saturday that the company is protecting its stablecoin against a “black swan failure of the US banking system”.
“SVB is a critical bank in the US economy and its failure – without a federal bailout – will have broader implications for business, banking and entrepreneurs,” he tweeted.
Circle said it would continue to operate normally while awaiting clarity from US regulators on how the weakening of SVB will affect Circle and USDC depositors. It did not immediately respond to a request for comment.
Since SVB’s collapse, the USDC token has traded as low as 88 cents on the dollar, according to industry price tracking website CoinMarketCap.
Circle held cash in several US regulated financial institutions, including Silvergate and SVB, it has revealed.
