Sudden Circle Depeg ‘Panic’ May Be About to Crash the Price of Bitcoin, Ethereum, BNB, XRP, Cardano, Dogecoin, Polygon and Solana
BitcoinBTC, ethereum and other major cryptocurrencies are braced for extreme volatility after Circle’s $43 billion USDCUSDC stablecoin lost its US dollar peg – capping a wild week for crypto.
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Bitcoin price has dropped 10% this week due to the failure of crypto-friendly bank Silvergate, wiping $100 billion from the combined crypto market as the price of top ten cryptocurrencies ethereum, BNBBNB, XRPXRP, cardano, dogecoin, polygon and solana go in free fall.
Now the crisis at startup lender Silicon Valley Bank (SVB), where stablecoin issuer Circle held a portion of USDC cash reserves, threatens to wipe out the second largest stablecoin by market capitalization.
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“Silicon Valley Bank is one of six bank partners that Circle uses to manage the ~25% portion of USDC reserves held in cash,” Circle posted to Twitter, exacerbating a nearly 10% drop from its peg to the US dollar. “While we await clarity on how the FDIC receivership of SVBVB will affect depositors, Circle and USDC continue to operate as normal.”
Circle has $3.3 billion of the $40 billion backing their stablecoin deposited with SVB. SVB deposits of up to $250,000 are guaranteed by the Federal Deposit Insurance Corporation (FIDC), potentially leaving Circle and other depositors out of pocket.
“FIDC deposits are only insured up to $250,000, and when there is a bank run, depositors can lose,” said Markus Thielen, head of research and strategy at Matrixport, in an emailed statement.
In a further blow, major US crypto exchange Coinbase, which issues USDC through a joint venture with Circle, announced that it has suspended USDC conversions for US dollars, posts to Twitter it would “temporarily” pause conversions while banks are closed over the weekend.
“Circle is currently protecting USDC from a black swan failure of the US banking system,” Circle chief strategy officer Dante Disparte wrote on Twitter. “Silicon Valley Bank is a critical bank in the U.S. economy, and its failure — without a federal bailout — would have broader implications for business, banking, and entrepreneurs.”
California-based SVB was taken over by regulators and shut down on Friday after panic spread among depositors who withdrew about $40 billion from the bank and efforts to raise new capital failed.
The bank’s problems are believed to have started when the US central bank began raising interest rates last year, wiping out the value of mortgage bonds and US Treasuries. This week, Fed Chairman Jerome Powell told lawmakers that he sees interest rates rising ahead of market expectations this year.
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Meanwhile, Circle’s banking woes, contributing to the crypto crisis triggered by the collapse of Silvergate earlier this week, have sent bitcoin transaction fees soaring as traders frantically try to secure their crypto.
“Bitcoin network transaction fees are very high and indicate panic,” Thielen said, adding that the largest stablecoin tether has managed to keep its dollar peg for now.
“From the three major stablecoins we now have one standing and of course it’s the major one. Tethers USDTUSDT which has been out of the Paxos-Binance BUSDBUSD storm in February and is also now weathering the Circle USDC storm.”
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