Elizabeth Howcroft
Thomson Reuters
Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money that powers ‘Web3’.
Crypto investors withdraw $3 billion from stablecoin USDC in three days
LONDON, March 16 (Reuters) – Crypto investors pulled about $3 billion in total from stablecoin USDC in three days, the company behind the token said in a blog post on Thursday, as investors rushed to redeem their holdings in the wake of the collapse of Silicon Valley Bank.
The USDC broke the dollar peg on Saturday after Circle revealed that $3.3 billion of the coin’s reserves were with SVB.
The stablecoin fell as low as $0.88, according to CoinGecko data, but returned to $1 on Monday. Circle announced that it would allow automatic USDC redemption through a new banking relationship, with Cross River Bank.
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with traditional currencies. USDC is the second largest stablecoin with a market capitalization of $37.6 billion.
From Monday to Wednesday, Circle processed $3.8 billion in USDC redemptions (investors exchanged their tokens back to US dollars) and created $0.8 billion more of the token, Circle’s blog post said, meaning investors have withdrawn about $3 billion in total over the course of of the three days.
The rapid outflows come after US banking regulators issued a new warning last month that crypto-related deposits in banks could be exposed to liquidity risk. The regulators highlighted deposits linked to stablecoins as sensitive to volatility during periods of market stress if there is a rapid influx of redemption requests.
In the past week, investors have withdrawn a net $6 billion from the coin, according to CoinGecko data.
“The events of the past week have impacted liquidity operations for the USDC,” Circle said.
“We will continue our efforts to add more transaction banking partners.”
Moody’s analysts said in a note that the USDC losing its link highlights that the links between the crypto world and traditional finance are unpredictable, and “may cause financial institutions to reconsider their cooperation with stablecoin operators”.
“This scenario would increase stablecoins’ dependence on a smaller number of institutions and limit their ability to maintain stable exchange rates,” Moody’s said.
Reporting by Elizabeth Howcroft; editing by Sharon Singleton and Jason Neely
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