The two biggest cryptocurrency exchanges, Binance and Coinbase, have revealed that they would temporarily suspend USDC conversions on their platforms. This comes in the aftermath of the collapse of US lender Silicon Valley Bank and concerns about its effect on USDC.
Binance And Coinbase Suspend USDC Conversion
Binance was the first to make a move by that it had temporarily suspended its auto-conversion of USDC to BUSD. Citing current market conditions, the exchange added that it was a standard risk-management procedure while monitoring the market situation.
It should be noted that Binance had earlier in the year courted controversy with its decision to auto-convert USDC transactions to BUSD. At the time, Binance cited improving liquidity for users, and it is unknown if this latest development could lead to permanently delisting the stablecoin.
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Following Binance’s announcement, Coinbase also that it would pause its USDC conversion to USD until Monday. The exchange noted that during heightened activities, conversions rely on USD transfers from banks completed during banking hours. It further added that conversions would resume on Monday when banks reopen.
Silicon Valley Bank’s collapse has caused a ripple effect in the fintech company, with several companies revealing their exposure to the U.S-based bank. Some affected crypto companies include Pantera, Avalanche, and BlockFi.
Circle, the company behind USDC, revealed on Friday that it had $3.3 billion of the $40 billion reserves backing the stablecoin in the now-defunct bank. It added in a statement on Twitter that Silicon Valley Bank was one of six banks it uses to manage 25% of USDC reserves. Circle noted that it would continue to operate normally while awaiting clarity from the FDIC on how SVB collapse would affect depositors.
USDC Market Cap Decreases Following Circle Announcement
Unsurprisingly the crypto market has reacted to the news with investors removing their assets from USDC. At the time of writing, more than $1.3 billion has been redeemed from the stablecoin in the past few hours.
The trading price of USDC has also suffered volatility dropping from its pegged value of $1 to as low as $0.93, according to data from CoinMarketCap. This is the lowest the stablecoin has reached since its all-time low of $0.89 in May 2019. Its marketcap has also reduced to $36 billion.
Silicon Valley Bank’s collapse has been tagged as the worst bank failure since 2008, and there’s uncertainty about what is next for the bank. Its stock is down 87% in two days due to the crash and has been placed into FDIC receivership.
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Experts have hypothesized that other banks may likely suffer the same fate if their business models and balance sheets are not properly managed for rising interest rates and the growing possibility of a recession.
The consistent raising of interest rates by the Federal Reserve could have been a significant factor to SVB’s implosion.
Featured Image from Unsplash, Charts from Coingecko