Cutting it close… Crypto had a weekend it'd rather forget. Circle, the biz behind USDC (the second-largest stablecoin), said on Friday that $3.3B of the stablecoin's US-dollar reserves were in the failed Silicon Valley Bank — which regulators had taken over earlier that day. With the future of SVB's deposits in doubt, crypto investors worried that USDC might no longer be fully reserved (aka: backed one to one with US dollars).
- The drop: USDC, which was designed to always = $1, depegged over the weekend. The stablecoin fell to as low as 87 cents.
- The climb: Circle said it'd "cover any shortfall," and on Sunday the gov’t said all SVB depositors would be made whole. Yesterday USDC regained its $1 peg.
Have crypto, will travel… While SVB's collapse sent shockwaves through crypto, it wasn't the first crypto-friendly bank to run into trouble. Last week crypto mega bank Silvergate said it'd shut down after a surge in post-FTX withdrawals. And on Sunday regulators moved to close New York's Signature Bank (over a fourth of its deposits were from crypto companies like Coinbase and Paxos). Now, with three big crypto banking players off the board, the industry’s scrambling to find alts.
Crypto can't shake TradFi's grip… Circle's rough weekend is a reminder that crypto's fortunes remain tied to traditional finance (aka: TradFi). It wasn't just the stablecoin heavyweight that was forced to face this reality: bankrupt crypto lender BlockFi and Ripple Labs — the biz associated with the $19B XRP token — both had exposure to SVB. Still, some crypto fans see the recent bank failures as an argument for digital assets. Think: self-custodied crypto vs. bank-custodied dollars.