The cryptocurrency market started crashing again earlier this week, as Bitcoin broke its support price of 20K. The total crypto market cap slipped below $1 trillion and panic spread quickly. Many crypto companies continue to take a hit, with Silvergate and Silicon Valley Bank being the latest to announce their insolvency. In turn, a USDC crash started to appear with prices de-pegging from $1. Will USDC crash? What are the latest USDC news?
What are Stablecoins?
Stablecoins are a type of cryptocurrency that are designed to maintain a stable value relative to a particular asset or a basket of assets. This is achieved by pegging the value of the stablecoin to an external asset or group of assets, such as fiat currency (e.g., US dollars), gold, or other cryptocurrencies.
Unlike other cryptocurrencies such as Bitcoin or Ethereum, the value of stablecoins does not fluctuate dramatically, as their value is tied to the price of the underlying asset they are pegged to. This stability makes stablecoins more suitable for everyday transactions and a useful tool for hedging against volatility in the cryptocurrency market.
What is USD Coin?
USDC stands for USD Coin, which is a type of stablecoin that should be pegged to the US dollar. It was launched in 2018 by Circle, a global financial technology firm, in partnership with Coinbase, a digital currency exchange.
As a fiat-backed stablecoin, USDC should be fully collateralized by US dollars, which are held in reserve by regulated financial institutions. For every USDC token in circulation, there is an equivalent amount of US dollars held in reserve, which should provide a high degree of transparency and security for users.
USDC is an ERC-20 token, meaning it is built on the Ethereum blockchain. It can be stored and transferred using Ethereum-compatible wallets and exchanges. It has gained popularity among cryptocurrency traders and investors as a way to easily move funds between different cryptocurrency exchanges, as well as for everyday transactions that require a stable value, such as remittances and e-commerce.
Why did USDC Crash?
Over the weekend, the cryptocurrency industry was hit hard when Silicon Valley Bank’s closure caused disruptions in the essential infrastructure of the industry. Stablecoin values experienced extreme fluctuations, and transaction fees skyrocketed as investors tried to move their funds following the bank’s shutdown due to its connections with cryptocurrency. This was the second bank linked to crypto to fail in the same week. In response, Treasury Secretary Janet Yellen called a meeting with key financial regulators to address the collapse of SVB. The incident caused chaos in the crypto markets, indicating that the already prolonged period of declining prices has now entered a more severe stage.
Coinbase responds to the USDC Crash
Coinbase, one of the entities behind USDC announced that they are halting withdrawals and conversions of USDC due to the high volatility. However, this move comes as negative news for investors who have their money tied in USDC, which was supposed to be a “stable coin”.
We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.
