Stablecoin USDC Takes $13 Billion Hit: Circle CEO Calls for Financial Reform
Circle Internet Financial CEO, Jeremy Allaire, has blamed the US financial system and regulatory environment for the recent $13 billion drop in the market capitalization of the stablecoin USD Coin (USDC).
According to Allaire, investors are concerned about the US banking system, and they are de-risking out of the country due to the challenging regulatory environment.
Stablecoins are key parts of the crypto sector, and investors often use them to park funds for trading. They are meant to hold a steady value, typically $1, and are often backed by reserves like cash and bonds. However, regulators have increased scrutiny of stablecoins over concerns about the risks they can pose.
USD Coin’s Tough March
USDC temporarily lost its $1 dollar market peg during the US banking crisis this year but has since stabilized. However, the token’s overall market capitalization has continued to fall, and it currently stands at about $30.7 billion from a peak of more than $56 billion in 2022.
US Banking Woes and Stablecoin Market Capitalization Drop
The market capitalization of USDC has dropped about $13 billion since US banking woes flared up in March. The token temporarily de-pegged after it emerged that $3.3 billion of the reserves used to back the stablecoin were at the collapsed Silicon Valley Bank.
Officials later said depositors would get their money back, part of an effort to shore up confidence in the US financial system. Circle also vowed to cover any reserves shortfall, and that helped USDC recover its $1 value in crypto markets.
US Regulatory Crackdown and Digital Asset Businesses
In the US, crypto firms are reeling from a sharp regulatory crackdown following the collapse of the FTX digital-asset exchange and a deep market rout last year. According to the US Securities and Exchange Commission, most tokens are unregistered securities, and too many digital-asset businesses have failed to comply with the agency’s requirements.
Crypto firms are calling on US politicians to put in place legislation to clarify the status of crypto assets. However, the prospects for near-term passage of stablecoin rules have dimmed, hampered by partisan divides.
Circle CEO Urges Congress to Step Up
Allaire believes that it’s a critical moment for the US, and Congress needs to step up. He added that questions are being raised about the competitiveness of the US dollar amid the evolution of blockchain technology and internet-based currencies. The European Union, Hong Kong, Singapore, and the Middle East are making progress on crypto rules, while “the US is behind right now,” Allaire said.
USDC is backed by cash and short-dated U.S. Treasuries and remains the second-largest token in the $132 billion stablecoin sector.
The biggest stablecoin is Tether, which has cemented its No. 1 position with a nearly $82 billion market value despite facing scrutiny about the transparency of its reserves. As crypto regulations continue to evolve, it remains to be seen how they will impact the stablecoin market and the broader cryptocurrency industry.