I give a clear forecast of the situation, but first let’s figure out what’s happening. The crypto industry and blockchain companies were among the top clients of SVB Bank, but the collapse of the Silvergate crypto bank led to the collapse of SVB itself, which, for a moment, is the 16th largest US bank with assets of $200 billion! Part of the USDC Circle issuer's reserves were held in SVB. The company's reserves have diminished and it can no longer trade its stablecoins 1-for-1.
But what happens next? There are two ways - restoration to $1 or further scam of the stablecoin. Let's think logically.
I note that due to the withdrawal of deposits, a bank with $200 billion collapsed, and Circle has only $40 billion in reserves, but, to be honest, we don’t know for sure how many of them are liquid. I looked at the Circle auditors' reports. USDC is currently backed 77% ($32.4 billion) by US Treasury bills (with maturities of three months or less) and 23% ($9.7 billion) by cash held in various institutions, one of which is SVB.
Circle's cash reserves are held at Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, Signature Bank, Silicon Valley Bank, and Silvergate Bank. 2 of the 7 banks where Circle's reserves were stored have already sunk. Part of the assets is in Signature Bank, which also provides services for cryptocurrencies, and is also under pressure because of everything that is happening.
Do not forget that the reputation of USDC has been undermined, and the actions of the crowd to withdraw funds can destroy any bank, not to mention a crypto project. If everyone gets rid of USDC on Monday, the stablecoin will not survive. Now this opportunity is limited, because The Coinbase exchange stopped the mechanism for exchanging USDC for fiat dollars until Monday.
Due to the blocking of funds in SVB, Circle cannot exchange its stablecoins 1 to 1. And don’t forget, the costs of operating activities, because of which, by and large, a 1 to 1 exchange is impossible in principle if everyone suddenly wants to go into fiat. A similar thing happens with banks, if everyone suddenly withdraws their deposits, the most reliable bank in the world will collapse, because... part of the funds was issued in the form of loans and invested, i.e. blocked, so there is a cash gap.
Many major players in the crypto market continue to buy USDC, as they believe in its recovery. Perhaps Circle will open a line of credit, manage to cover the deficit, or come to the aid of the Fed, but will you keep your funds in #USDC after the event?
All things considered, my prediction is: 55% that USDC will not cope with its problems, and 45% that it will be able to overcome difficulties and return to $1. I hope I'm wrong. I wish Circle victory in this difficult battle.
