The U.S. cryptocurrency firm Circle’s USD Coin lost its dollar peg and fell to a record low Saturday morning after the company revealed it has nearly 8% of its $40 billion in reserves tied up at the collapsed lender Silicon Valley Bank.
USDC is known as a stablecoin, which means the value of the virtual currency is supposed to be pegged to a reference currency. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to data from CoinDesk.
When banks collapse, no coins are stable.
Perversely, this fallout has nothing to do with USDC’s underlying crypto quality, and everything to do with Circle's unfortunate choice of bankers.
The fluctuation in USDC is inevitable, given the nature of stablecoins.
In order to maintain a dollar peg, one has to have a sufficient reserve of US dollars. One reason China for years was a major purchaser of US Treasuries is that Beijing used those holdings to keep the off-shore yuan within a certain trading range of the US dollar (and today they still use other mechanisms to achieve largely the same result).
When Circle was suddenly cut off from $3.3B of its dollar reserves, the effect would be just the same as if Beijing were suddenly cut off from a large portion of its US Treasuries portfolio.
While the ultimate outcome for the USDC stablecoin won't be known until next week, this is not the same situation as the collapse of the UST stablecoin and its companion crypto Luna last spring. UST was an algorithmic stablecoin, while USDC is a fiat-collateralized stablecoin.
In theory, if Circle can recover most if not all of its cash from the SVB collapse, it ought to be able to restore the 1:1 peg to the dollar. Whether Circle can restore the peg without that cash remains to be seen.
Whether Circle will be given the time by the crypto marketplace to recover the cash, assuming the cash is recoverable, also remains to be seen.
The fact that it predictably influenced BtC value tells us of the fickle nature of some or most crypto holders.
Good time to buy the dip imho.
The fluctuation in USDC is inevitable, given the nature of stablecoins.
In order to maintain a dollar peg, one has to have a sufficient reserve of US dollars. One reason China for years was a major purchaser of US Treasuries is that Beijing used those holdings to keep the off-shore yuan within a certain trading range of the US dollar (and today they still use other mechanisms to achieve largely the same result).
When Circle was suddenly cut off from $3.3B of its dollar reserves, the effect would be just the same as if Beijing were suddenly cut off from a large portion of its US Treasuries portfolio.
While the ultimate outcome for the USDC stablecoin won't be known until next week, this is not the same situation as the collapse of the UST stablecoin and its companion crypto Luna last spring. UST was an algorithmic stablecoin, while USDC is a fiat-collateralized stablecoin.
In theory, if Circle can recover most if not all of its cash from the SVB collapse, it ought to be able to restore the 1:1 peg to the dollar. Whether Circle can restore the peg without that cash remains to be seen.
Whether Circle will be given the time by the crypto marketplace to recover the cash, assuming the cash is recoverable, also remains to be seen.
I guess see my comment on your post just prior.