SVB closure spurs a crypto crisis: Coinbase and Binance suspend USDC conversions

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Just a day after covering Silicon Valley Bank stock (NASDAQ: SIVB) 60% dip after it announced it was raising funds to cover a loss it made after selling securities at a loss, the SVB closure is causing shockwaves in the crypto market.

The California Department of Financial Protection and Innovation (DFPI) ordered SVB to close and placed it under receivership with FDIC being announced as the receiver. SVB has become the first FDIC-insured bank to close.

Insured funds accessible starting Monday after the SVB closure

Immediately after being announced as the receiver, the FDIC announced that insured customers would be able to access insured deposits starting on Monday, March 13, 2023.

Those with uninsured deposits will be issued with a “receivership certificate” entitling them to future dividend payments once all the bank’s assets have been sold.

Circle reveals exposure to Silicon Valley Bank

Silicon Valley Bank offered services to a number of popular crypto VCs and Circle has listed it as one of the banks where it had stored some of its USDC stablecoin reserves. Circle has today confirmed that $3.3 billion worth of USDC reserves is locked up in the just collapsed bank.

1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.

— Circle (@circle) March 11, 2023

SVB managed 25% of USDC reserves. Besides Circle several other crypto firms including Avalanche, Pantera, and defunct BlockFi have revealed exposure to SVB.

Coinbase and Binance supend USDC conversions

The USDC stablecoin is currently the second largest stablecoin by market capitalization, and it depegged to $0.90 after Circle disclosed that some of its reserves were locked up in Silicon Valley Bank.

At press time, USD Coin (USDC/USD) was trading at $0.9078, which is the lowest the stablecoin has dropped since May 2019, when it dipped to an all-time low of $0.89.

Two top crypto exchanges, Coinbase and Binance have announced the suspension of USDC conversions over the weekend as the SVB collapse sends shockwaves across the crypto space.

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.

— Coinbase (@coinbase) March 11, 2023

Binance announced a temporarily suspension of the auto-conversion of USDC to BUSD citing “current market conditions.”

Binance has temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.

This is a normal risk-management procedural step to take while we monitor the situation.

— Binance (@binance) March 11, 2023

While the crypto market has responded slightly to the SVB closure, many believe the full impact will be felt on Monday after Banks resume operations and customers start withdrawing funds.

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