On Friday, two top cryptocurrency exchanges, Binance and Coinbase, announced they would suspend USDC conversions temporarily while the repercussions of Silicon Valley Bank’s closure were assessed. However, this was due to worries that Circle— the creator of USDC stablecoin—held some of USDC’s reserves at Silver Valley Bank, which had been shut down by the California Department of Financial Protection and Innovation. It’s worth noting that USDC was initially launched through Centre, a partnership between Coinbase and Circle.
Citing “current market conditions,” Binance announced that it has temporarily suspended the auto-conversion of USDC to BUSD without naming Silicon Valley Bank.
In response to Binance’s announcement, Coinbase, the largest cryptocurrency exchange in the United States, declared that it, too, would suspend USDC conversion to USD during weekends when banks are closed. Explaining its decision, Coinbase stated in its blog post:
“This is a normal risk-management procedural step to take while we monitor the situation. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours.”Coinbase
The conversion process will resume once banks have reopened on Monday.
The sudden failure of Silicon Valley Bank (SVB) on Friday sent shockwaves throughout the tech and crypto industries. Many companies, including Circle, Pantera, Avalanche, and bankrupt crypto firm BlockFi revealed their current exposure to the bank. Circle eventually disclosed that $3.3 billion worth of the cash backing USDC remains tied up in SVB, as it is one of the six banks used by Circle to manage 25% of USDC reserves.
Like other customers and depositors of SVB, Circle has called for the continuity of the important banking institution in the U.S. economy and will adhere to the guidance provided by state and Federal regulators. As a result of this news, the trading price of USDC (which is designed to stay at $1) experienced a freefall on Friday night, decreasing from $1 to $0.93 per CoinGecko.
This is the lowest the stablecoin had seen since May 2019, when it plummeted to an all-time low of $0.89. However, circle reassured its customers that while they wait for further clarity on how the FDIC receivership of SVB will affect its depositors, Circle and USDC are continuing to function normally.