In a shocking move, two of the leading cryptocurrency exchanges, Coinbase and Binance, have halted conversions of the USDC stablecoin due to fear over its peg to the US dollar.
The move comes as the value of the USDC has trembled in recent days, causing some investors to worry about the stability of the digital currency.
What is the Reason behind this Sudden Drop?
Circle, the firm behind the USDC stablecoin, who holds approximately $3.3 billion USDC-backed cash reserves at Silicon Valley Bank, which recently shut down by California’s banking regulators is believed to be the major reason behind this sudden drop. As per the reports trading price of USDC, which is expected to be fixed at $1, also dropped from $1.00 to $0.93 yesterday night.
While stablecoins like USDC are designed to be more resilient than other cryptocurrencies, they are not completely exempted from market fluctuations which can cause their value to decline. In a statement, Coinbase announced that it was halting USDC conversions to USD for the weekend. Binance, meanwhile, commented that it was blocking USDC auto-conversions to BUSD amid current market situations.
What does this mean for Investors?
For investors who hold USDC, the suspension of conversions may create havoc. It means that they will not be allowed to liquidate their USDC to USD and BUSD until the suspension is removed. However, it is noteworthy that USDC can still be leveraged for transactions on exchanges that support it.
The suspension may also have more far-reaching consequences for the cryptocurrency market. Stablecoins like USDC are leveraged as a way to shift funds to different exchanges and wallets, so any interference in their use could harm the overall liquidity of the market.
