Coinbase is not allowing USDC to be exchanged for dollars. š Circle had $3.3 billion of its $40 billion of USDC reserves at collapsed Silicon Valley Bank. That effectively puts each USDC at $0.9175 instead of $1.00.
Discussion
Where is the rest of the reserves and what paper do these corresponding banks hold?
From Circle's website:
Cash held at U.S. regulated financial institutions: Bank of New York Mellon, Citizens Trust Bank, Customers Bank,
New York Community Bank, a division of Flagstar Bank, N.A., Signature Bank, Silicon Valley Bank and Silvergate
Bank.
Oof. The last two are gone now.
Although, thereās no evidence their reserves at SVB are *gone*. On paper, there appears to be enough assets at the bank to pay out all the depositors in the coming weeks. And the bond market is trading as if thatās true. I would bet, contrary to the doomer narrative, that nearly 100%, if not 100% of deposits are going to be recovered.
Agreed. Would be shocked if itās less than 90% recovery for depositors.
Yeah, SVB failed because of an deposit duration/asset maturity mismatch, which couldnāt be corrected due to the cost of rolling those assets, which was a result of terrible risk management on their balance sheet. Their completely loss of liquidity was a function of that. Not a function of the bank being insolvent.
Thanks for clarifying that, Mike.
Yep!
Borrow short lend long is the root of many a bankrupt bank.
Surprised people still put money in such institutions.
They get crunched every single rate hike cycle.
I guess people have short memories or a too young to know better.
if they were to liquidate the rest of their long duration assets at current market value would they have enough capital to cover deposits?
But didn't those mistakes then end up making them insolvent?
To me, if you can't pay out what's owed at any moment, you're insolvent. Certainly their practices led to that, no?
Why would bond pricing indicate anything?
Bonds and prefs are at the hold co level.
The bank co is in BK. The hold co is not. The hold co has diff assets than the bank co. Previously it had claims to equity value from the bank co, in exchange for the capital it put in. That equity is now gone.
And amazingly thatās exactly how itās trading rn
If they open redemptions there will be a run, and that missing $3.3 billion will become a much greater share of the reserves, meaning the price will drop in tandem.
I think I finally understand economics
It's honestly amazing that we didn't learn these things in high school or college. Maybe we did and I was too immature or dumb then to understand it, but I really feel like these aspects of the subjects weren't covered. Thanks Bitcoin!
No, I think keeping us in the dark in school on how the banking system worked was like keeping the slave population in the antebellum South from knowing how the legal system worked
Probably nothingā¢
It's increasing every few hours .. about 10 hrs ago it was 0.88.. then 0.9 a bit later. Its just cope.. people are calculating usdc value like share holders... Usdc holders don't get anything if bankrupt. The board of directors get the assets..
But as people redeem their USDC the proportion of the remaining supply that is stuck with SVB increasesā¦ Soā¦ That value decreases with each redemption?
Right. As a bank run or USDC run happens, it just gets worse and worse.
Oh dear!
Ripple effect
From what I read, it sounds worse than $0.91. The first people that are able to redeem will get $1, but after Circle no longer has enough money to cover redemptions, USDC holders get nothing. USDC becomes completely worthless. A bank run destroys all value in USDC. I donāt know why people would take a chance on it.
Lesson learned ā¦ converted all my remaining usdc tonight into btc. Put it to cold storage and will never touch stable shit again š®āšØ
And the market appears to be pricing it accordingly. Markets are always right.
If they actually can process the demand for withdrawals it will go back to $1 otherwise it will go to 0. Itās kinda an all or nothing
You're right. If it doesn't return to it's peg very soon everyone will lose all faith in it and rush to get rid of any USDC they're stuck with.
When (if?) they re-enable withdrawals there will be arbitrage to bring it back to $1 but if thereās too much arbitrage then they will have to turn off withdrawals again. At that point itās Katie bar the door as everyone runs for the exit
Ok, so if people sell USDC, the 91 percent reserve goes down over time. That's why Coinbase paused it. But that's no good for you if other platforms remain open over the weekend, like bitcinex, kraken or binance. If a coin run starts to really take off, this thing goes belly up.
#[0]
if only ..
It is going to be very interesting to see how many more dominoes fall after SVB.
Only when you assume the whole $3.3 bln are - poof - gone! But there is a fair chance for a haircut between 50-80% or even of a federal bailout, or Elon buys SVB or whatever. But it is pretty implausible that the whole $3.3 bln are gone completely!
No shit! Things are gonna become nasty pretty quickly I would say! šæ
Your post is creating a buzz.
Added to the https://member.cash/hot feed
I've kept away from them after they got hacked like 5 years ago
Coinbase was hacked 5 years ago? š§
I have no recollection of this either. š¤·š»āāļø
