Circle’s exposure to SVB is $3.3 billion

The biggest news in the financial world this week was the collapse of Silicon Valley Bank. It was a spectacular collapse that occurred within approximately 48 hours and could create a storm in the industry. Many financial firms were left on the edge and one of them was Circle.

And this is not a small exposure for the crypto company, but an amount exceeding $3.3 billion. The consequences for the company could be very negative and some of them are already evident. Such is the case of the stable coin issued by that firm (USDC). This asset lost linkage with the USD due to massive withdrawals by users.

It should be taken into consideration that this stable currency is the second most important of its kind after Tether’s USDT. Consequently, it is valued at more than $40 billion, which adds more drama to the matter. Thus, a collapse of this company and its coin would cause a new cataclysm in the cryptocurrency market.

Meanwhile, the broader digital currency market remains in the red following Bitcoin’s setback.

Crypto firm Circle finds itself at the center of the storm

Last Wednesday, SVB confirmed the sale of most of its shares as a desperate attempt to raise funds. Nervousness among its customers and investors immediately erupted. Some of the venture capitalists holding the firm recommended clients to pull out, triggering the stampede. Clients with exposure included Circle and more than a dozen banks.

Thus, the amounts of USDC reserves the firm held at that bank reportedly collapsed as a result of the events. Although California authorities took control of the lender to ensure payment to its investors and customers, the weight of the news took its toll. The events were so precipitous that SVB was finished in less than 48 hours. In fact, during the course of Friday the institution was unable to sustain itself for six more hours.

The panic that the latter generates in the market is responsible for the fall of the crypto company’s stable coin. Investors from different sectors remain on guard against seismic movements in the financial world. One should not lose sight of the fact that recently another lender(Silvergate) also went to the floor. The latter concentrated its business in the cryptocurrency sector.

During the fall of Silvergate, the crypto firm Circle, announced that it had moved part of its reserves from that financial institution to others. It is presumed that among the latter would be SVB. In any case, a significant number of companies in the digital currencies sector rushed to social networks to deny exposure to the bank.

Likewise, the crypto firm assured that it continues to operate normally, the same as its currency. This while waiting to see how SVB’s suspension of payments will affect its customers.

Other firms in the sector are quick to disassociate themselves from the failed bank

The fact that one of the most important companies in the cryptocurrency sector got caught becomes a problem. USDC’s hypothetical exit from the game could translate into a new catastrophe that would shake the sector. Of that the rest of the companies are aware, which wasted no time in declaring their non-exposure to the lender.

It is worth mentioning in parenthesis that the fall of Circle and its currency is not inevitable. However, its exposure to the failed bank is not small. As such, it comprises $3.3 billion of the $40 billion of stable currency reserves. That is enough to send shivers down the spines of investors and holders of funds in that asset.

Hence, representatives of companies such as Binance and Tether immediately came out to clarify their zero exposure to the lender. Both Changpeng Zhao and Paolo Ardonio, in the same respective order, said that their companies are healthy in this new drama. The same was announced by stablecoin issuer Paxos and cryptocurrency trading firm Gemini, owned by twins Tyler and Cameron Winklevoss.

On the other hand, Circle undertook measures in the face of withdrawals by nervous users. Notable among them was the burning (taking out of circulation) of some $2.34 billion USDC last Friday, according to Nansen. According to data from tracking platforms such as Coinmarketcap and Coingecko, the coin hit record lows of $0.87 this Saturday (March 11). At the time of writing, the stable coin is at $0.97 to the dollar, generating optimism that the worst is over.

What will happen to SVB customer funds?

As already highlighted, California regulatory authorities, specifically the Federal Deposit Insurance Corporation, took control of the bank this Friday. This came after the institution stopped its activities due to the impossibility of raising additional funds and in the face of massive withdrawals. The agency then created the Deposit Insurance National Bank of Santa Clara.

This new bank created by the authorities now holds SVB’s insured deposits. As such, regulators would be responsible for selling the assets or implementing other strategies they deem necessary to pay out investor and customer funds.

“Circle is not the only firm belonging to the universe of digital currencies that was affected with the fall of SVB. Joining that club are several firms, including Avalanche’s parent company.”

With this, it can be said that the funds of the companies that were inside this lender would be safe. However, the magnitude of the fall makes it inevitable that other firms will go bankrupt. This is because it is not a small matter, but the second largest collapse of a lender in the history of the North American country.

In parallel, it is highlighted that other companies in the cryptocurrency area also had exposure to SVB. Apart from Circle, the bankrupt BlockFi also had funds close to $230 million. Crypto-related venture capital firm Pantera would also have an unknown amount of funds in the financial institution.

Similarly, the Avalanche Foundation, parent company of the eponymous blockchain, would also be in on the matter. The same goes for Yuga Labs, creator of the popular non-fungible token (NFT) collection Bored Ape.

It’s not all doom and gloom for crypto company Circle

Despite the alarms about Circle’s situation and its stablecoin, it stands out that it’s not all bad news. In that sense, the stablecoin could be in better shape than one might imagine. The latter is due to the fact that more than 77% of its funds would be backed by Treasury notes (T-Bills) of between 4 and 28 weeks, assures the analysis firm Deloitte.

The fact that these Treasury bills would be deposited in BNY Mellon and managed by BlackRock stands out. The latter, it should be noted, is the largest fund manager in the world. In other words, all of this can be translated into Circle being in a position of strength despite the current whirlwind surrounding it.

According to Hal Press, all this safeguard in T-Bills allows Circle’s stable coin to have a floor of $0.77% from which it would not go below. This same portal claims that other banks in which Circle holds funds are in good financial health. In conclusion, the only way for USDC to suffer the same fate as Terra’s UST is for all the banks where it has reserves to go bankrupt and for BlackRock to also suffer a similar fate.