- USDC stablecoin has regained its dollar peg at 99.3 cents on multiple price indices.
- The development follows interventions by US Government and financial regulators to mitigate risks.
- Circle will complete the transfer for the remaining SVB cash to BNY Mellon instead of SigNet.
US Dollar Coin (USDC), the second-largest stablecoin, has regained its dollar peg, reinstating to a price of $0.993 on multiple price indices. The stablecoin had plunged to a new all-time low of $0.87 on Friday night after its issuer, Circle, disclosed having $3.3 billion of cash reserves backing USDC held at collapsed Silicon Valley Bank (SVB).
Federal Reserve Board to help banking systems safeguard deposits
The restoration to normalcy came after recommendations from the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve board (Fed). Treasury Secretary Janet L. Yellen took up the proposals with the President before approving actions to enable the FDIC to complete its Silicon Valley Bank and Signature Bank resolutions. The interventions pivoted on the full insulation of insured and uninsured depositors.
Resultantly, in a joint statement on March 12, Treasury secretary Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said, “All depositors of SVB will be made whole.”
This is the right move to preserve the banking system: Depositors will be made wholehttps://t.co/0hrb3oLS4I
— Garry Tan 陈嘉兴 (@garrytan) March 12, 2023
The Fed also revealed plans to avail additional funding to eligible depository institutions. This would bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
Circle CEO assures the safety of deposits
Circle CEO Jeremy Allaire has given an update on the situation in a Twitter thread, saying, “100% of deposits from SVB are secure and will be available at banking open tomorrow.” The Circle executive also acknowledged interventions by the US government and financial regulators in mitigating risks extending from the fractional banking system.
Based on the announcement, Circle will complete the transfer of the remaining SVB cash to BNY Mellon. The shift to BNY Mellon is attributed to the recent closure of Signature bank, which hampers the processing of minting and redemption through SigNet. Notably, the Signature bank crisis saw the likes of Coinbase exchange with up to $240 million in unrecovered deposits.
As of close of business Friday March 10 Coinbase had an approximately $240m balance in corporate cash at Signature. As stated by the FDIC, we expect to fully recover these funds. https://t.co/XY5L7m4RMs
— Coinbase (@coinbase) March 12, 2023
Moreover, a new transaction banking partner will potentially be stepping in with automated minting and redemption as soon as Tuesday, March 14. These changes are part of Circle’s commitment to “building robust and automated USDC settlement and reserve operations with the highest quality and transparency.”
Crypto market players suffer another scare
Notably, the weekend slump shook investor confidence in USDC stablecoin to the core, including other stablecoins such as USDD and USDP. The depegging sparked doubts on the viability of stablecoins at large, and while the USDC has rebounded, there is still no certainty on whether the doubts have been quelled completely.
Nonetheless, following the news, the crypto market cap is back above the $1 trillion mark, with market participants thanking the decisive action from the US Government throughout the process. Foremost, the White House, Treasury, FDIC, the Fed, Congress, and California leaders stepped up to help investors through a very intense time.
While some saw a problem, others identified an opportunity, among them smart traders who acquired the asset for 88 cents, hoping it would soon regain its one-dollar peg.
USDC at $0.88 was such a good buy if you had the liquid to make a play.
— JOEYVOWELS.ETH (@joeyvowels) March 11, 2023
A few of my frens put in a long position on USDC and they're raked.
High-net-worth individuals like hedge fund North Rock Digital CEO Hal Press also bought the dip with the expectation of a bounce shortly after.
The hedge fund North Rock Digital CEO Hal Press said that they has continued to buy more USDC at $0.88, having previously bought at $0.935; he believes that USDC will end up fully repegging, a worst case 70% of the cash via asset sales USDC would still be worth 93c.
— Wu Blockchain (@WuBlockchain) March 11, 2023
The move has, however, brought back to life the arguments of Securities and Exchange Commission (SEC) chair Gary Gensler on whether USDC is a security.
Gensler was right all along. People do indeed buy USDC at $0.88 with an expectation of profit and thus is a security /s
— fishball (,) (@fishball_au) March 11, 2023
Notwithstanding, it will be hard for Gensler to go after USDC, given that the CFTC also said that fiat-based stablecoins are commodities and not securities.
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