The influence continues to spread from SVB
Following the bankruptcy of Silicon Valley Bank (SVB), Circle announced on Twitter that they were stuck with $3.3 billion at the bank, out of a total of more than $40 billion in reserves for their USDC. It is not yet known how much Circle can recover from SVB bank.
This news made the market panic and USDC lost the peg to $0.87 and then rebounded. If USDC holders panic or worry that they don’t have enough money in reserve, they can also rush to sell or exchange their coins.
In light of the situation, leading crypto exchanges like Binance and Coinbase have both said they will temporarily suspend conversions to USDC as the contagion from the SVB collapse unfolds.
The influence of SVB is not only in USDC but also in other projects. The MakerDAO community last year decided to store a portion of USDC with Coinbase Prime to get 1.5% return in order to secure the value of the DAI stablecoin. Therefore, USDC’s peg loss also affected DAI’s temporary peg loss in the past day. Over the past day, the amount of DAI burned has increased sharply because investors fear a greater impact and do not want to store this coin.
USDD stablecoin also suffers from this fear causing it to lose the peg for a short time. After that, the USDD peg also rebounded.
According to a bankruptcy filing filed on March 10, BlockFi is stuck with $227 million uninsured by the FDIC for mutual fund investments at the recently closed Silicon Valley Bank. BlockFi’s investments in Silicon Valley Bank are not FDIC-insured, are not protected by any federal government agency, and are not guaranteed by any bank.
The FDIC’s Federal Deposit Insurance covers $250,000 per depositor but does not cover the scope of money market funds (in the case of BlockFi mutual fund investments). BlockFi is a lender in the crypto market and also went bankrupt in November 2022. SVB’s event will make BlockFi’s money deposited in this bank waiting to be paid to the victims and do not know how it will be handled.
Convenience to convert full USDC to BTC
Many stablecoins were affected but USDT was not affected until yesterday. Tether’s USDT still holds the 1 USD peg while many other stablecoins lose their pegs. However, USDT still has a lot of bad rumors over the years, just because it is not affected in this event does not mean that it can be completely trusted. Therefore, Thuan decided to transfer all of his USDC holdings to BTC to avoid the greater risks associated with stablecoins at the moment.
Many of you ask why every time there is a change, Thuan can make a decision so quickly. Part of it is that I have to anticipate cases like losing pegs, maybe I won’t know why stablecoins lose pegs, but if it happens, what options do I have.
When it comes to risk management, there is no perfect choice, depending on how much you want to “manage”, and how much “risk” you accept, it is a trade-off. If we focus too much on looking for a perfect choice, the possibility is that we will be passive.
In last night’s case involving USDC, Thuan viewed the 10% loss as a premium and BTC futures, and chose to transfer USDC’s risk to someone else at a 10% premium. Maybe USDC will be okay, or continue to lose the peg, there is no right or wrong, that is the risk and return that both parties will accept.
For Thuan, the four most expensive words in investing are “This time will be different”, followed by “Never”, and the third most valuable words are “passive income”.
As we can see, banks like SVB have also repeated the mistakes of other banks in the past. They over-lending and investing and don’t manage risks well. The market thinks that through the mistakes of the banks or any event there will be better laws, better management and the outcome “will be different this time”. But history continues to repeat itself.
Or Circle company is audited by Deloitte company, one of the leading auditing firms in the world. They deposit money in safe banks or large hedge funds. Causing many to think, Circle’s USDC is by far the safest stablecoin and will “never” lose its peg. However, the collapse of SVB has shown us the opposite, anything is possible.
Finally, “passive income” is a word that has been drawn out within the last two years. When entering the crypto market, a lot of people forget the principles or risk management in the traditional financial market. Staking for profit, depositing money for profit, … encountered the collapse of many companies, causing many people to lose money in the past time. In the traditional market, earning passive income is often charged with very high fees that make the residual income negligible, or fraudulent events.
When you think back, you’ll see that we don’t pursue “passivity” in other areas of our lives. Do you like passive doctor? Doing business with a passive partner? Passive exercise? Passive sex?… but we love passive investing… active people take money from passive people.
Circle reassures the community
After the SVB event happened and had an impact on the USD, Circle company quickly updated the information so that the community could feel more secure. They are committed to clear and transparent communication. USDC liquidity will resume as normal when banks open Monday morning in the US, they said.
In terms of collateral structure, USDC is 100% collateralized with a combination of cash and US Treasuries, Circle announced.
Specifically, USDC is currently collateralized 77% ($32.4 billion) in U.S. Treasury Bills (with maturities of three months or less) and 23% ($9.7 billion) in cash held at multiple institutions. organization, of which SVB is just one. US Treasury bills are the most liquid asset in the world and are a direct obligation of the US government. These reserves are held by BNY Mellon, and active liquidity and asset management is managed by BlackRock. Anyone can view the entire liquidity ladder up to the CUSIP number on T-Bills via the USDXX banner.
The remaining 23% ($9.7 billion) is in cash. Circle took action to reduce banking risk and deposited $5.4 billion with BNY Mellon this past week, one of the largest and most stable financial institutions in the world, known for the strength of balance sheet and as a custodian. Circle’s $3.3 billion figure stuck at SVB will wait for government agencies to process and make a decision.
Many investors are calling for support and intervention from the Fed. The Fed needs to provide funds to attract other banks to join in. Most of SVB’s customers have a deposit at this bank that is much larger than the amount insured by the FDIC. Therefore, investors are calling on the Fed to have a bailout package to support the employees of SVB. This event will also affect the Fed’s decision on interest rates at its next meeting.
The events of SVB remind us of why in 2009, Satoshi Nakamoto launched Bitcoin. He said that Bitcoin was born to help solve the problem that the root of conventional currency is Trust.
I have developed a new open source P2P cryptocurrency system called Bitcoin. It is completely decentralized, with no central server or trusted parties, because everything is based on cryptographic proof instead of trust.
The root problem with conventional currency is all the trust needed to make it work. Central banks must be trusted to not devalue currencies, but the history of fiat currencies is full of violations of that trust. Banks must be trusted to hold our money and transfer money electronically, but they lend themselves in the credit bubble with almost no reserve. We must trust them for our privacy, trusting them not to let identity thieves drain our accounts. Their huge overhead makes micropayments impossible.”
The chaos that happened to the financial system, the banks remained true to what Satoshi said. The more we see the value of Bitcoin being born to solve existing problems. It further strengthens the belief that the future of Bitcoin will continue to grow.
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