Stablecoin Market Depeg Strong Due To The Fall Of Silicon Valley Banks

Key Points:

• The value of significant stablecoins such as USDC and BUSD has dropped to the $1 mark after the US government ordered Silicon Valley Bank to close.
• USDC recorded its deepest depeg in 3 years after claiming “mild” exposure to the collapsed bank.
• BUSD was also inevitably affected, causing Binance to announce the cessation of the USDC to BUSD conversion feature “because of market conditions”.
• The price of the largest stablecoin in the crypto market, USDT, increased to $ 1.01, the highest value threshold since August 2020.

The stablecoin market plummeted after a significant impact on the closure and forfeiture of Silicon Valley Bank made by the California state government on March 10.

The news that received the most attention in the past 24 hours in the US stock market and the cryptocurrency industry was the rapid collapse of Silicon Valley Bank, the 16th largest commercial bank in the US, managing assets of more than $200 billion. This was coined as the most extensive banking accident since 2008, with $209 billion in losses.

The impact of the above event has yet to be fully quantified so far, because of the risk of creating a knock-on effect for other central banks and individuals and businesses depositing money at Silicon Valley Bank.

Particularly in the crypto market, US officials are also highly concerned with the prospect of crypto companies keeping their money here. Silicon Valley Bank specializes in providing services to technology startups and investment funds in the US Silicon Valley area, the technology and advancement center of the United States. A similar fallout occurred for crypto-friendly bank Slivergate Bank following the collapse of empire giant FTX in late 2022.

Crypto projects and companies quickly release information that reassures customers about not being involved or having deposits on Silicon Valley Bank accounts.

However, the market became chaotic when stablecoin issuer Circle – the owner of the second largest stablecoin in the cryptocurrency market, USDC, with a market capitalization of 43.5 billion USD – confirmed that it had stored a Cash escrow on Silicon Valley Bank. So the 25% figure they announced is approximately $2.7 billion held in six banks, including Silicon Valley Bank. Circle confirmed to hold $3.3 billion in USDC collateral on Silicon Valley Bank. This amounts to 7.6% of USDC’s $43.4 billion capitalization.

This number far exceeds the expectations of $1 billion. According to the estimate of 40% loss, Circle’s loss may reach $1.2 billion.

USDC price has been depeg (falling off the $1 mark) because of the above negative news, falling to the $0.997 mark. This is the deepest depeg of USDC since July 2020, lower than crises like LUNA-UST or FTX.

Binance and its BUSD stablecoin issuer Paxos, despite denying their relationship with the collapsed bank, the world’s largest cryptocurrency exchange, Binance, announced it would stop converting USDC to BUSD “because of the market situation,” regarding the increase in deposits and stablecoin conversion pressure.

BUSD also suffered the same fate as it broke away from the $1 mark, having hit $0.9873 at the time, well below the bottom when the US stablecoin Binance US allegedly was security in mid-February. However, there was a slight recovery after that and it is currently moving around the $0.997 mark in the last 24 hours.

In contrast to the above two stablecoins, the price of the largest stablecoin in the crypto market, USDT, increased to $ 1.01, the highest value threshold since August 2020, due to the flight from other stablecoins to USDT by some investors.

The extent of the knock-on effect of this collapse is not known at this time, but it can be seen that the US authorities are watching closely, but banks are involved with cryptocurrency service providers because, according to them, this could be a potentially considerable risk.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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