USDC Stablecoin Crash & Revival

What Happened and What It Means For Crypto Sector

If you woke up to the news of “USDC depeg,” Bitcoin suddenly traded above $24,000, and still have zero ideas what happened, the Arctic team is here to break down the situation and recap the key events for you.

What happened on March 10, 2023?

Two of the few crypto-friendly American banks, Silicon Valley Bank and Signature Bank, were closed by regulators and overtaken by the Federal Deposit Insurance Corporation (FDIC). The announcements followed a shutdown of another crypto-related bank, Silvergate.  

You may have very well missed the whole thing as events unraveled over the course of the weekend. We will now analyze what it had to do with stablecoins and what consequences it may have on the crypto market as a whole.

Immediate Effect on Crypto

The news shook up the stablecoin market with the USDC coin, USDC-collateralized stables DAI and FRAX, and other top centralized stablecoins losing their peg to $1.

USDC-USD Chart, March 10-14, 2023 / Source: CoinMarketCap

Stablecoins are digital currencies backed by unfluctuating real-world assets, mainly the US dollar, with their value tethered 1:1 to the backing asset. This class of cryptocurrencies constitutes the backbone of the crypto sector by bridging fiat and digital currencies, while also offering liquidity to the market and stability to traders and investors.

• March, 11

Provided that approximately 8% of USDC reserve funds were locked up in Silicon Valley Bank, the sentiments surrounding the SVB collapse urged USDC holders to rush and sell the coin at 85 cents on a dollar. USD Tether and Binance USD stablecoins go above a dollar peg.

Source: Twitter

The stablecoin price dropped 11% to an all-time low at $0.8774, dragging down other stablecoins as well as altcoins. Bitcoin also reversed to a 90-day low, hitting a $19,628 mark.  

• March, 12

FDIC and the Federal Reserve announced to be putting up measures to allow SVB depositors — Circle, the emittent of USDC, included – to have full access to their funds held at the banks.

• March, 13

On the news, USDC almost regains its peg, followed by a full recovery by the time of writing, while Signature Bank joins the list of affected parties. Circle claims a non-exposure to Signature Bank.

Fed takes additional steps to secure banks from bankruptcy by allowing loans against securities.

Binance moves a billion dollars worth of their Industry Recovery Initiative funds kept in BUSD stablecoins into altcoins like Bitcoin, Ethereum, and Binance Coin to secure funds from stablecoins crash.

Source: Twitter

• March, 14

Bitcoin shows the most volatile action for the past months, bouncing up to $25,000 per coin and above, which indicates that not only Binance but also regular crypto holders pick up BTC instead of stables. Crypto enthusiasts speculate on the start of a bullish uptrend for altcoins.

What’s in Store for Crypto Industry?

Regulatory Issues

Stablecoins and crypto in general have come under increased scrutiny from regulators in recent years. The recent events could bring further attention and ultimately lead to increased regulation, which could impact the growth and development of the crypto industry.

Three major banks offering loans to crypto projects collapsing may cause trouble for cryptocurrencies to find new banking homes. Meanwhile, the largest world banks, including Santander and Deutsche Bank, are rumored to be willing to take on crypto clients, according to CoinDesk. The question is, if banking regulators will support financial institutions catering to crypto needs or add more hurdles to it.

Source: Twitter

Trust Issues

The nonvolatility of stablecoins is supposed to be a key selling point. The crash we faced can wipe out the confidence in stablecoins, which can impact the adoption of cryptocurrencies as a whole.

On the other hand, investors losing trust in a banking system could encourage them to seek places to store their wealth where they don’t have to trust third parties. Since crypto and Bitcoin is the main way to do so, we can witness a heightened demand for cryptocurrencies, which is already happening to Bitcoin.

Source: Twitter

Bottom Line

Undeniably, March 2023 has been a tumultuous month for the crypto industry, and the impact of this crash can been seen throughout the industry. Arctic Wallet remains committed to providing our wallet users with the tools and resources you need to navigate these challenging times. While we believe that stablecoins continue to play an important role in the ecosystem, cryptocurrencies keep securing the reputation of being the safer harbor to regular people concerned with centralized banking risks. Hence, despite the traditional economy turbulence, cryptocurrencies may have a bright future with the community commitment to crypto and a little regulatory help.