Will the Ongoing USDC Depeg Worsen Crypto Winter Further?

• 25% of Circle’s USDC cash reserves were managed by Silicon Valley Bank.
• The market cap of USDC crashed down over 14% in the last 24h.

The second largest stablecoin USD Coin (USDC) depegged from its $1 parity owing to the shutdown of the US banking giant Silicon Valley Bank on Friday. The failure of this largest bank is registered as the worst banking crash since the 2008 financial crisis.

The custom of crypto firms depositing their asset reserves in regulated banking systems is entitled to hidden threats. This is evidently proven via the recent bank-related crypto crashes. Several crypto firms were exposed to the preceding Silvergate collapse and tagged with corresponding losses. 

Markedly, Silicon Valley Bank’s failure has trapped Circle and its stablecoin USDC in a terrible torpedo. A lawyer cum crypto-enthusiast MetaLawMan scrutinized US regulators for being the collapse’s initiator in the shadow. He also pointed out Signature Bank as the next target.

The domino effect of this crash is something the crypto sector fears. If the de-pegging slows down, relief would be generated amid the crypto space. As a precautionary remedy to this chaos, leading exchanges such as Binance and Coinbase have temporarily suspended USDC conversions. 

Deja Vu to USTC Crash?

This ongoing USDC turmoil alarms investors about the hidden threats that might follow. Predominantly, the crypto community has pulled up the horrendous collapse of Terra’s algo-stablecoin USTC. But both cases share zero to minimal similarities. USDC’s peg is synced to the centralized dollar (USD) whereas USTC was pegged to its sister token LUNC. 

According to CoinMarketCap, at the time of writing, USDC traded at $0.9139. In the last 24 hours, the stablecoin hit its all-time low of $0.8774. 

The largest stablecoin Tether (USDT) hovers and clings onto its $1 peg. While other stablecoins such as Binance USD (BUSD), Dai (DAI), and USDD have sunk below $1. Due to depegging of USDC, the overall stablecoin market witnessed over 5% drop, as per Coingecko.

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