Jeremy Allaire, the Chief Executive Officer (CEO) of USDC issuer Circle has attributed the devaluation of the United States dollar-backed stablecoin to the current challenge in the region’s financial and banking sector. In an interview with Bloomberg, the Circle CEO said,
“We are seeing a huge amount of concern globally about the U.S. banking system. We are seeing concern about the regulatory environment in the U.S.”
U.S. Financial Institutions Collapse in Succession
Two crypto-friendly financial institutions Silvergate Bank and Signature Bank collapsed towards the end of Q1 citing regulatory pressures from U.S authorities. Silvergate Bank announced that it was shouting down its operations and voluntarily liquidating its assets. As part of its liquidation plans, the company declared that all deposits will be repaid in full.
Signature Bank suffered a similar fate but its non-crypto deposits was later acquired by Michigan-based Flagstar Bank. Also, Silicon Valley Bank was threatened by inadequate liquidity and insolvency.
Circle Suffers Silicon Valley Bank Contagion
Following the regulatory challenges and the collapse of these financial institutions including Silvergate Bank and Silicon Valley Bank, many investors began to redirect their investments outside the U.S.
This action caused a drop in the USDC market value according to Allaire. Noteworthy, Circle had also admitted to be exposed to Silicon Valley Bank up to the tune of $3.3 billion. Less than a month after its exposure to SVB was announced, investors pulled out their assets leading to huge outflows in billions. Eventually, this led to the gradual de-pegging of the USDC stablecoin.
USDC Market Cap Dips, Tether Takes Over
Therefore, instead of its $1 peg, the value of USDC has been fluctuating between $0.81 and $0.9. For now, it is stable and at the time of this writing, USDC was trading at a market value of $0.9999. While stability has returned to the unit trading value of the stablecoin, its market capitalization is still below its all-time high.
Far from the market cap of $56 billion which USDC had in 2022, its market cap currently sits at $30.7 billion based on data from CoinGecko.
Riding on the wings of USDC de-pegging, rival stablecoin USDT is gaining more market capitalization, over $80 billion at the time. This is because most investors who pulled their USDC holdings are investing in USDT instead.