USDC Stablecoin Depegs, Crypto Market Goes Haywire After Silicon Valley Bank Collapses

USDC's normally stable price sank to 87 cents from $1 while Ethereum gas fees soared hours after the crypto-tied bank failed.

AccessTimeIconMar 11, 2023 at 5:51 a.m. UTC
Updated Mar 13, 2023 at 3:09 p.m. UTC
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The cryptocurrency crisis went into high gear early Saturday as Silicon Valley Bank's (SVB) failure caused some of the industry's core plumbing to go haywire.

Stablecoin prices wildly swung and gas fees soared as investors scrambled to move money around hours after regulators shut SVB amid a run on the bank, which had ties to crypto. It was the second crypto-linked bank to go under this week.

In the aftermath, Treasury Secretary Janet Yellen convened top financial regulators to discuss the collapse of SVB. Not long after, crypto markets went into turmoil, suggesting the more-than-year-long bear market has entered an even darker phase.

There's echoes of the 2008 global financial crisis, when bad news kept getting followed up by even worse news. Though in the case of crypto, which lacks a central bank like the Federal Reserve that can bail out the industry, the question lingers: How will it end?

Circle Internet Financial's USDC stablecoin massively depegged from its intended $1 price – a harrowing development for a product designed as a place for investors to safely park money. The USDC/USDT pair (which tracks Circle's coin versus the bigger one issued by Tether) sank as low as 87 cents on the Kraken exchange at 07:16 UTC on Saturday – far lower than it ever got amid the market stresses that followed the FTX debacle in November. It was back around 94 cents as of 18:07 UTC.

USDC/USDT sinks (Kraken)
USDC/USDT sinks (Kraken)

The financial services company confirmed late Friday that about $3.3 billion of the reserves backing the world's second-largest stablecoin were tied up at SVB.

Stablecoins derive their value from those reserves. If one is worth more than $43 billion – as USDC was earlier on Friday – there should be roughly that much cash or cash-like fixed-income instruments stashed somewhere backing that up. USDC's market capitalization has now slumped below $40 billion.

USDT, meanwhile, at one point spiked to $1.06 on Kraken versus the U.S. dollar as investors appeared to shift money away from USDC. Bitcoin climbed back above $20,000.

Gas fees, which measure how much it costs to complete an on-chain transaction, surged. For Ethereum, the median gas fee jumped as high as about 231 gwei, versus the roughly 20-to-40 range seen earlier Friday, according to Nansen.ai.

Ethereum gas fees (Nansen.ai)
Ethereum gas fees (Nansen.ai)

Crypto was born in the aftermath of – and, to some, in response to – the 2008 economic crisis. Satoshi Nakamoto's Bitcoin paper debuted into a world where governments had just propped up the financial system by pouring money into it. Crypto lacks such a centralized authority. If SVB customers, including Circle and its USDC stablecoin, are forced to take a haircut on their money, the repercussions are unclear.

So who, if anyone, will step in?

When Razer CEO Min-Liang Tan tweeted late Friday that Twitter should buy SVB and turn into a digital bank, billionaire Elon Musk tweeted in reply, "I'm open to the idea."

UPDATE (March 11, 2023, 18:07 UTC): Updates prices and adds DAI's depegging.

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Nick Baker

Nick Baker is CoinDesk’s deputy editor-in-chief and a Loeb Award winner. His crypto holdings are below CoinDesk's $1,000 disclosure threshold.


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