What Has Happened to Silicon Valley Bank and Is USDC Safe?

The run on Silicon Valley Bank and its subsequent takeover by the FDIC has created ripples across the tech and crypto worlds that won’t easily disappear. But, what happened to send one of the tech world’s most valued financial institutions into a downward spin that has USDC investors contemplating a nail-biting future and the California wine industry facing a financial crisis?

In this blog, we’ll lift the lid on the meltdown of SVB. Here’s why we think USDC investors should play the long game and that it’s not all over for Circle.

Photo by Mariia Shalabaieva on Unsplash
Photo by Mariia Shalabaieva on Unsplash

Why has the Silicon Valley Bank Collapsed?

Known for investing in emerging industries when other banks would not, and pushing forward early-stage tech, the collapse of SVB on 10th March 2023 has caused shockwaves across the globe. Why did the SVB stock plummet and precipitate $42 billion in outflows in under 12 hours?

The answer lies in its investment portfolio, over 92% – $21 billion – in US treasuries and securities with an annual yield of 1.79%. While SVB decided to hold those investments, they were obligated (as banks worldwide are) to keep a large percentage of their funds in high-quality liquid assets. In this case, mortgage-backed securities. 

But, in response to rising inflation across the USA, the Federal Reserve increased interest rates to 3.8%, sending the value of the SVB bond portfolio to the floor and a need for SVB to sell at a $1.8 billion loss. The bank attempted to sell $2.25 billion in shares to shore up its liquidity, but the result was panic, with funds, businesses, start-ups, and individuals withdrawing their assets amid increasing uncertainty. 

What Does the SVB Collapse Mean for Circle Stablecoin (USDC)?

Caught in the fallout is Circle Stablecoin, USDC, as Circle admits to holding 8.5% of its USD reserves – a total of $3.3 billion – in the bank. When Coinbase suspended USDC:USD conversions over the weekend, it sent a message to crypto investors that they needed to get out fast. When the banks reopened, some did just that, moving their USDC assets to USDT and other cryptocurrencies at a huge loss. Circle has burned $2.34bn USDC in the last 24 hours, 70% in the last eight hours, leading to fears of insolvency. But some commentators are more optimistic there is light at the end of the tunnel for Circle. Here’s why.

Photo by Badhan Ganesh on Unsplash
Photo by Badhan Ganesh on Unsplash

Is USDC Safe?

The future of USDC was uncertain. $3.3bn is stuck in SVB, but that money isn’t gone. The FDIC typically pays out 94% in a similar recovery process, which brings the loss down to $198m – an amount that Adam Cochran, founder of CEHV, believes Circle could cover from this year’s interest alone. Pear Protocol founder agrees, saying “Am levered long USDC, but it’s not “risk-free”.

UPD: as of March 13, 2023, USD Coin successfully restored its’ peg to US dollar value.

What About Other Cryptocurrencies

Good news for crypto investors is that USDT and BUSD are still well pegged and not exposed as a result of the SVB collapse. Keep your investments safe with our secure multi-key crypto wallet – download the Linen mobile app now