Circle, a US-based cryptocurrency firm, announced over the weekend that nearly 8 percent of its $40 billion reserves were tied up with SVB. As a result, the value of Circle's stablecoin, USD Coin (USDC), which is designed to maintain a fixed value relative to the U.S. dollar, plummeted to a record low on Saturday morning.
Despite being intended to trade at $1, USDC dropped below 87 cents on Saturday, as per CoinDesk data quoted by CNBC. In all, some $3.3 billion of Circle's reserves are at risk.
On Friday, regulators closed down Silicon Valley Bank and took control of its deposits, marking the most significant US banking failure since the 2008 financial crisis. The bank's downfall began on Wednesday when it shocked investors by revealing its need to raise $2.25 billion to strengthen its balance sheet. The subsequent rapid decline of the bank, which had a strong reputation and had grown with its technology clients, was nothing short of remarkable, the outlet continued.
Circle took to Twitter on Friday to state that it still has $3.3 billion in reserves left at Silicon Valley Bank, despite the bank's collapse. The cryptocurrency firm urged regulators to maintain the continuity of the bank, and pledged to follow regulatory guidance going forward, the report said.
2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023
The cryptocurrency sector is still recovering from the unexpected failure of FTX last year, and the recent detachment of USDC from the US dollar could indicate further turbulence ahead. Stablecoins, like traditional banks, are susceptible to runs, and this development has raised concerns among industry players, CNBC noted.
According to a regulatory filing from California, SVB customers withdrew an astonishing $42 billion in deposits by the end of Thursday. The filing also indicated that by the close of business on Thursday, SVB had a negative cash balance of $958 million, and was unable to secure enough collateral from alternative sources.
"If USDC holders get spooked or worry that there is not enough money in reserve, they could also rush to sell or exchange their coins," the outlet reported further.
Meanwhile, SVB Financial Group and two of its senior executives, including CEO Greg Becker and CFO Daniel Beck, are facing a lawsuit from shareholders filed on Monday, according to Fox Business. The lawsuit alleges that the company and its executives concealed information about how increasing interest rates could leave Silicon Valley Bank, which collapsed last week, "particularly susceptible" to a bank run. The proposed class action lawsuit was filed in a federal court in San Jose, California.
The legal action against SVB Financial Group and its top executives is anticipated to be the first in a series of lawsuits arising from the collapse of the bank.
Elsewhere in the financial sector, despite U.S. regulators' efforts to restore confidence in the financial system and mitigate the impact of SVB's collapse, the stock of First Republic Bank tumbled on Monday as well, Fox Business reported separately.
"The San Francisco-based First Republic saw its shares plummet about 75%, leading losses among regional banks. There were other notable declines among financial institutions – both big and small – on Monday morning. Customers Bancorp dropped 55%, PacWest Bancorp tumbled 41%, Zions Bancorporation slid 39%, Charles Schwab fell 17% and Bank of America shed 4%," the outlet noted.
First Republic Bank revealed on Sunday that it has obtained extra liquidity from JPMorgan Chase and the Federal Reserve. The bank, which has $213 billion in assets, now has access to $70 billion in untapped liquidity.