The crypto industry was recently rocked by news that USD Coin (USDC) issuer Circle was unable to withdraw $3.3 billion of its $40 billion reserves from Silicon Valley Bank (SVB). This caused the price of the stablecoin to fall below its $1 peg, with USDC trading at $0.8774 at the time of writing.
The issue began on March 9, when Circle initiated a wire transfer to remove its funds from SVB. However, two days later, Circle confirmed that the wire transfers were not wholly processed, leaving $3.3 billion of USDC reserves still with SVB. This news caused a sell-off of USDC, resulting in the price drop.
Dante Disparte, the chief strategy officer and head of global policy for Circle, warned that the failure of SVB — without a federal rescue plan — will have broader implications for business, banking and entrepreneurs. To reduce exposure, crypto companies, including Coinbase and Jump Trading, redeemed approximately $850 million and $138 million USDC, respectively.
Just two weeks prior to the news, Circle had announced plans to increase its staff headcount by 25%, going against the ongoing layoff trend. Circle’s chief financial officer Jeremy Fox-Geen had also shared its intent to go public, pending an improvement in market conditions. He added that the crypto industry needs more distance from the Terra and FTX implosions for public investors to re-evaluate the future of digital-assets businesses.
The news of Circle’s inability to withdraw its funds from SVB is a reminder of the risks associated with the crypto industry. While the industry is still in its early stages, it is important for investors to be aware of the potential pitfalls and to exercise caution when investing.