Banks are not exempt from inflation either, the SVB closed the doors and momentarily dragged USDC down to lose its parity with the dollar
This weekend we have witnessed how the closure of another bank in the United States has managed to shake the traditional financial market, and also the cryptocurrency market.. From CryptoMarket they have offered their point of view to better understand what is happening.
The closure of Silicon Valley Bank has led USDC, a stablecoin issued by Circle, to lose parity with the US dollar. This is because the Circle company confirmed over the weekend that had some reservations there in that entity.
From CryptoMarket they explain that “Over the weekend, the USD Coin (USDC) stablecoin, one of the most widely used in Latin America and the rest of the world, lost its 1:1 parity with the US dollar and on Saturday plummeted to a record low of USD 0.87.”.
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They further state that as a side effect, DAI and other stablecoins that exist in the market, moved away from their parity with the dollar amid widespread fears.
However, already on Sunday the 12th, USDC began the path to recovering its 1:1 parity with the dollarand from CryptoMarket they explain that it is mainly due to two reasons, the first is that Circle CEO Jeremy Allaire confirmed that the reserves were safe and that the funds were protected.
100% of USDC reserves are also safe and secure, and we will complete our transfer for remaining SVB cash to BNY Mellon.
As previously shared, liquidity operations for USDC will resume at banking open tomorrow morning.
— Jeremy Allaire (@jerallaire) March 12, 2023
100% of the USDC’s reserves are also safe and secure, and we will complete the transfer of the remaining cash from the SVB to BNY Mellon.
As previously stated, USDC liquidity operations will resume tomorrow morning with the opening of the banks.
The second reason stems from the fact that the United States Federal Reserve announced bank bailout programsand these two reasons made USDC gradually recover parity with the dollar.
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At the moment, USDC is up 3.3% in the last 24 hours to settle at $0.99, according to data from CoinMarketCap. To this end, Rafael Meruane, co-founder of CryptoMarket explains that “The market has gradually stabilized after the US authorities announced plans to mitigate the consequences of the insolvency of Silicon Valley Bank, allowing the stablecoin USD Coin to return to a 1:1 ratio against the dollar”.
Likewise, it indicates that the current bullish prices of bitcoin and ethereum are a repercussion of the marketThey explain that “the market increased 7% in the last hours, as the Federal Reserve (FED) injected liquidity into the United States economy. In the same vein, the trading volume of Bitcoin shot up by almost 100%, according to data from Coinmarketcap”.
However, he states that “It is important to note that Bitcoin price projections are highly variable and subject to various factors. As part of cyclical behavior, cryptocurrencies could hit all-time highs and also experience dips. If we look back, since its inception, Bitcoin has had at least five bearish cycles from which it has later recovered.”.
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So, in this specific case, we have been able to see once again how the US banking system is fragile in the face of interest rate rises, and in the midst of that fragility, Two banks in the system have collapsed in less than a weekit remains to be attentive to the repercussions that this entails in the rest of the markets.
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