USDC Conversion Suspensions: Traditional Banking Contagion Spreads
“USDC Conversion Suspensions: Coinbase and Binance React as Dollar Peg Stabilizes, While BlockFi and Avalanche Reveal SVB Ties”
SVB Collapse and Stablecoin Depegging: What We Know So Far
Circle, a cryptocurrency firm, reports $3.3 billion stuck in SVB as DAI/USDC depeg continues after Silicon Valley bank collapse.
Binance suspended USDC conversions due to volatile market conditions, while Coinbase suspended USDC conversions over the weekend when banks were closed.
Crypto firms hurt by SVB contagion include BlockFi, Circle, and Avalanche.
Circle reported $2.5 billion in USDC redemptions and $7 billion in exchange inflow within 24 hours.
On March 11, DAI, the decentralized stablecoin of MakerDAO, hit its all-time low at 0.88 cents during Asian afternoon hours.
According to Nic Carter, the crackdown is “Operation Choke Point 2.0,” a remnant of the Obama-era Justice Department policy.
12 days ago, Silicon Valley Bank CEO Gregory Becker sold 11% of his shares.
Tether, the stablecoin USDT, briefly surged following news that it was unaffected by SVB.
TradFi banking contagion
A day after Silicon Valley Bank (SVB) was placed into federal receivership and both deposits and withdrawals ceased, Circle, the issuer of stablecoin USDC, lost its $1.00 peg to the US dollar, sparking concerns of a run on the stablecoin, similar to the UST de-pegging from Terra Luna.
Overnight, USDC lost 14 cents from its $1.00 peg, dropping to as low as 0.86 cents.
Circle stated that $3.3 billion of the $40 billion USDC reserves remain at SVB, and called for the continuity of the bank in the U.S. economy.
Both BlockFi and Avalanche have revealed connections to the distressed bank, raising fears of contagion within the crypto industry.
These developments have reignited concerns that government regulation can target the crypto industry by using fiat on/off ramps as “choke points.”
LOOK OUT BELOW pic.twitter.com/Cm72Ec854S
— beeple (@beeple) March 10, 2023
CZ took to Twitter to speculate if it was time for exchanges like Binance to start buying up distressed banks.
Leveraged positions open up
Some traders are buying USDC in anticipation of a potential 10% gain if the tokens return to their intended dollar mark.
These traders are betting on a gradual recovery to $1 due to the relatively cheap price of USDC.
Leveraging could amplify returns for these traders, as seen by the futures funding rates on Bybit, which reached as high as 0.3% on Saturday morning.
Opened $114k $USDC long at $0.87
You know shit is hitting the fence when you are lev trading a "stable" coin 🤡 https://t.co/TPEUbfM80b pic.twitter.com/Yl3KnGBlXf
— Defi_Maestro ✺ (@Defi_Maestro) March 11, 2023