One of the most used crypto dollars in Argentina lost its parity with the US currency after the fall of a bank

Some $3.3 billion of the reserves that support the one-to-one dollar peg of the USD Coin stablecoin were on deposit at Silicon Valley Bank.

The USD Coin (USDC) stablecoin, one of the most widely used in Argentina and the world, lost one-to-one parity with the US dollar and plummeted to a record low on Saturday after Circle, the US company that backs the currency, revealed that some of the reserves that back it were deposited in Silicon Valley Bank, a bank in trouble. Also DAI and USDD, other cryptocurrencies that exist in the market, moved away from their peg with the dollar amid widespread fears.

Circle has $3.3 billion of its $40 billion reserves in Silicon Valley Bank, which collapsed, the company said in a tweet on Friday.

The cryptocurrency broke its one-to-one peg with the dollar and fell as low as $0.88 shortly after 11 a.m. Buenos Aires this Saturday, according to CoinGecko. It recovered slightly to trade around $0.90 at press time.

The stablecoin broke away from the 1-to-1 relationship with the dollar and even touched $0.88. Source: Coinmarketcap

Silicon Valley Bank collapsed on Friday in the biggest US banking collapse since the 2008 financial crisis, rocking global markets and stranding billions of dollars belonging to companies and investors.

Circle said in a tweet on Friday that the company and USDC “continue to operate as normal” while the firm waits for clarification on what will happen to Silicon Valley Bank depositors.

Meanwhile, US cryptocurrency exchange Coinbase said in a tweet that it was not allowing USDC to be exchanged for US dollars over the weekend while banks are closed, citing “intensified activity.” On Monday that operation will be able to be done.

“No matter how strong Circle’s operations are, this kind of peg loss on a stablecoin tends to fundamentally undermine confidence in it” (Edwards)

Joseph Edwards, investment adviser at Enigma Securities, told Reuters the situation was “extremely dire” for USDC.

“No matter how strong Circle’s operations are, this kind of peg loss on a stablecoin tends to fundamentally undermine confidence in it,” Edwards said.

“The near-term implications here are dramatic and unknowable, especially once systems start having to adjust to the reality that $1 isn’t trading $1 just yet.”

The company reported on Twitter that it had been affected by the collapse of SVB

Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies – those backed by a central bank -, for example, through a 1:1 parity with the US dollar.

USD Coin is the second most important among these “crypto-dollars”, which users use as a substitute for the US bill. The most important in the world is Tether, also known as USDT.

USDT, mainly, has a lot of reach among Argentine investors and financial institutions that operate with dollars in the informal market. To a lesser extent, USDC -the currency that experienced problems today- also had a very important acceptance in the local crypto market.

Silicon Valley Bank headquarters in Santa Clara, California (Reuters)

Tether so far resists. In fact, its price – which in theory should be stable – jumped above $1 this morning given the buying flow of investors dumping their USDC as a result of the peg loss.

Those that did not resist the fears were DAI and USDD. The first was created as an algorithmic stablecoin but, over time, it became a hybrid since, in addition to maintaining its parity with the dollar automatically, it is now supported by reserves. USDD is Tron’s stablecoin and it also fell below the $1 threshold in what was contagion from the run against USDC.

Tether has a market capitalization of $72 billion, according to CoinGecko. After a massive exit, USD Coin is close to USD 25,000 million in capitalization.

The USDC price usually stays close to $1, so the drop on Saturday is unprecedented. According to CoinGecko data, its previous all-time low was around $0.97 in 2018, though in 2022 it fell to just below $0.99 as cryptocurrency markets were rocked by the collapse of the Three Arrows Capital fund.

The CEO of crypto exchange Binance said in a tweet on Friday that he had no exposure to Silicon Valley Bank, as did Tether CEO Paolo Ardoino. Stablecoin issuer Paxos and cryptocurrency exchange Gemini also tweeted that they have no relationship with the bank.

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