While others saw Circle's USDC depeg as crisis, these traders saw an opportunity

• USDC stablecoin has regained its dollar peg at 99.3 cents on multiple price indices.
• The development follows interventions by US Government and financial regulators to mitigate risks.
• Circle will complete the transfer for the remaining SVB cash to BNY Mellon instead of SigNet.

US Dollar Coin (USDC), the second-largest stablecoin, has regained its dollar peg, reinstating to a price of $0.993 on multiple price indices. The stablecoin had plunged to a new all-time low of $0.87 on Friday night after its issuer, Circle, disclosed having $3.3 billion of cash reserves backing USDC held at collapsed Silicon Valley Bank (SVB).

Federal Reserve Board to help banking systems safeguard deposits

The restoration to normalcy came after recommendations from the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve board (Fed). Treasury Secretary Janet L. Yellen took up the proposals with the President before approving actions to enable the FDIC to complete its Silicon Valley Bank and Signature Bank resolutions. The interventions pivoted on the full insulation of insured and uninsured depositors.

Resultantly, in a joint statement on March 12, Treasury secretary Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said,  “All depositors of SVB will be made whole.”

The Fed also revealed plans to avail additional funding to eligible depository institutions. This would bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

Circle CEO assures the safety of deposits

Circle CEO Jeremy Allaire has given an update on the situation in a Twitter thread, saying, “100% of deposits from SVB are secure and will be available at banking open tomorrow.” The Circle executive also acknowledged interventions by the US government and financial regulators in mitigating risks extending from the fractional banking system.

Based on the announcement, Circle will complete the transfer of the remaining SVB cash to BNY Mellon. The shift to BNY Mellon is attributed to the recent closure of Signature bank, which hampers the processing of minting and redemption through SigNet. Notably, the Signature bank crisis saw the likes of Coinbase exchange with up to $240 million in unrecovered deposits.

Moreover, a new transaction banking partner will potentially be stepping in with automated minting and redemption as soon as Tuesday, March 14. These changes are part of Circle’s commitment to “building robust and automated USDC settlement and reserve operations with the highest quality and transparency.”

Crypto market players suffer another scare

Notably, the weekend slump shook investor confidence in USDC stablecoin to the core, including other stablecoins such as USDD and USDP. The depegging sparked doubts on the viability of stablecoins at large, and while the USDC has rebounded, there is still no certainty on whether the doubts have been quelled completely. 

Nonetheless, following the news, the crypto market cap is back above the $1 trillion mark, with market participants thanking the decisive action from the US Government throughout the process. Foremost, the White House, Treasury, FDIC, the Fed, Congress, and California leaders stepped up to help investors through a very intense time.

While some saw a problem, others identified an opportunity, among them smart traders who acquired the asset for 88 cents, hoping it would soon regain its one-dollar peg.

High-net-worth individuals like hedge fund North Rock Digital CEO Hal Press also bought the dip with the expectation of a bounce shortly after.

The move has, however, brought back to life the arguments of Securities and Exchange Commission (SEC) chair Gary Gensler on whether USDC is a security.

Notwithstanding, it will be hard for Gensler to go after USDC, given that the CFTC also said that fiat-based stablecoins are commodities and not securities.