TLDR: The most trusted stablecoin USDC dropped to $0.87 this weekend, due to Circle holding 8% of its reserves in a less than stable bank and widespread panic triggering a bank run. The situation also caused the entire cryptocurrency market to slide. However, at this time USDC and the entire cryptocurrency market is making a very strong return after federal agency involvement.
UPDATE (3/13/2023): USDC has climbed up to $0.9998 at this time, many parts of the entire cryptocurrency market are returning if not doing better than before. This was after planned intervention had been announced by the Federal Reserve, U.S. Treasury, and FDIC, with the claim that taxpayers will not bear the costs.
The stablecoin USDC has been a trusted choice within the cryptocurrency community for quite some time, given its promise to maintain a 1:1 ratio with the US dollar. USDC’s credibility has largely been attributed to its 100% backing by cash and short-term U.S. treasuries, as well as its management by Circle, a consortium that includes members of Coinbase, the world’s largest cryptocurrency exchange for over a decade.
However, this weekend brought shocking news as USDC’s value plummeted to $0.87, officially breaking its peg with the US dollar. Circle had announced that 8% of its reserves were at risk due to being tied up in Silicon Valley Bank (SVB), which had collapsed the day prior following a bank run triggered by the bank’s announcement to sell $21 billion in securities, borrow $15 billion, and hold an emergency sale of its treasury stock to raise $2.25 billion.
The sudden and drastic announcement triggered a $42 billion bank run the next day, with Circle’s reserves tied to SVB, which ultimately led to the loss of value, utility, and trust in USDC, the most reputable stablecoin on the market. As a result, Coinbase halted USDC trading over the weekend, and the entire cryptocurrency market experienced a downturn.
