Two of the largest cryptocurrency exchanges, Binance and Coinbase, have revealed that they will be temporarily suspending USDC conversions on their platforms. This comes after the collapse of US lender Silicon Valley Bank and concerns about its impact on USDC.
Binance and Coinbase Suspend USDC Conversions
Binance was the first to step in announcement of that it had temporarily suspended its auto-conversion of USDC to BUSD. Citing the prevailing market conditions, the exchange said it was a standard risk management process while monitoring the market conditions.
It should be noted that Binance courted controversy earlier in the year with its decision to auto-convert USDC transactions to BUSD. At the time, Binance cited an improvement in liquidity for users, and it is unknown whether this latest development could lead to a permanent delisting of the stablecoin.
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After Binance’s announcement, Coinbase too Tweeted That it will hold its USDC conversion to USD until Monday. The exchange noted that during times of increased activity, conversions rely on USD transfers from banks completed during banking hours. It further said that the conversion will resume on Monday when the banks reopen.
The collapse of the Silicon Valley bank has created a ripple effect across fintech companies, with many companies disclosing their exposure to the US-based bank. Some of the 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 in reserves backing the stablecoin in a now-defunct bank. It said in a statement on Twitter that Silicon Valley Bank is one of six banks that manage 25% of USDC reserves. Circle noted that it will continue to operate as usual while awaiting clarity from the FDIC on how the collapse of SVB will affect depositors.
USDC market cap decreased after Circle’s announcement
The crypto market has reacted unexpectedly to the news that investors are moving their assets out of USDC. At the time of writing, over $1.3 billion has been redeemed from the stablecoin in the past few hours.
USDC has also faced volatility in its trading price, falling from its estimated value of $1 to as low as $0.93, according to data from CoinMarketCap. This is the lowest the stablecoin has hit since its all-time low of $0.89 in May 2019. Its market capitalization has also declined to $36 billion.
The collapse of Silicon Valley Bank has been marked as the worst bank failure since 2008, and there is uncertainty about what lies ahead for the bank. The crash has caused its stock to fall 87% in two days and has been placed into FDIC receivership.
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Experts have hypothesized that other banks may face the same fate if their business models and balance sheets are not managed properly to account for rising interest rates and an increased likelihood of recession.
The continued increase in interest rates by the Federal Reserve could have been a significant factor in the implosion of the SVB.
Featured image from Unsplash, chart from CoinGecko
Credit : www.newsbtc.com