The stablecoin market is in turmoil following the depegging of Circle Internet Financial’s USDC stablecoin from its intended $1 price. The event has been called a “harrowing development” for a product designed as a safe haven for investors.
According to CryptoQuant founder Ki Young-ju, value dropping to zero means major shareholders are selling. While there is currently no on-chain proof of a USDC bank run, the situation has caused significant concern among investors.
Although no on-chain proof of a USDC bank run has been found, Circle has burned $2.34 billion in USDC in the last 24 hours. While this is a significant amount of money, it is not unusual when looking at the historical data.
According to what I’ve observed, this USDC situation is a completely different case from the UST collapse in May 2022. During the UST collapse, on-chain activities prior to the collapse indicated that LFG sent BTC to exchanges and issued infinite LUNA to restore the UST peg.
Stablecoin prices have wildly swung and gas fees have soared as investors scramble to move money around in the aftermath of regulators shutting down SVB amid a run on the bank. The bank had ties to crypto, making it the second crypto-linked bank to collapse this week.
Circle Internet Financial confirmed that about $3.3 billion of the reserves backing the world’s second-largest stablecoin were tied up at SVB. Stablecoins derive their value from these reserves, and USDC’s market capitalization has now slumped below $40 billion.
USDT, meanwhile, has spiked to $1.06 on Kraken versus the U.S. dollar, a level it almost never hits, as investors appear to shift money away from USDC. Bitcoin rose in response to the events.
As the stablecoin market remains in flux, investors are keeping a close eye on developments to see how they will affect the broader cryptocurrency ecosystem.
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