USDC, one of the largest stablecoins in the market, backed by Circle, lost its dollar stability today. A significant liquidity boost to the fluctuating USDC comes from Ethereum founder Vitalik Buterin. North Rock Digital CEO says in Hal Press that USDC will recover and consider bottom prices. Here is the market reaction and expectations as USDC fluctuates.
Ethereum founder converts his fifties to USDC
Ethereum co-founder Vitalik Buterin recently converted 20,040 RAI to 56,746 USDC using vitalik.eth. RAI is an ETH-backed stablecoin that uses an algorithmic mechanism. Buterin has previously expressed optimism about the RAI model, but it remains unclear whether his latest move can be seen as a show of support for USDC.
In light of these developments, Circle announced that $3.3 billion of USDC reserves remained in Silicon Valley Bank due to bankruptcy concerns. Questions quickly came up about USDC’s overall stability, and investors are watching the situation closely.
Overall, the situation with USDC is complex and nuanced. While Circle’s reserves provide a base on USDC’s value, holding the stablecoin still has risks. But some investors are confident the price will recover and are buying more to take advantage of the drop…
USDC has enough reserves to recover
In recent news, Hail Press, Founder and CEO of hedge fund North Rock Digital, tweeted about Circle’s reserves and their impact on the USDC stablecoin. According to the tweet, Circle holds 77% of its reserves in 1-4 month old T-Bonds managed by Blackrock and held at BNY Mellon. This provides an absolute floor of 0.77 in USDC, making it a safe investment.
Circle holds 77% of their reserves in 1-4 month T-Bills.
These T-Bills are held at BNY Mellon and managed by Blackrock. This provides an absolute floor on USDC of 0.77.https://t.co/4rDUgIbFRXhttps://t.co/MHraW8wq7t pic.twitter.com/IdP1gwfKtk— Hal Press (@NorthRockLP) March 11, 2023
The remaining 23% of Circle’s reserves are held in cash at various establishments, and about 1/3 of that cash remained with the bankrupt crypto bank SVB. However, the SVB will liquidate all assets over the next few months and most estimates suggest they will return at least 10-20% of their total asset value. Such a move represents an overall loss of 0.8-1.5% for USDC. While some are optimistic that the loss could be lower, it still carries potential great risk. USDC is trading at $0.91 at the time of writing, after falling to $0.88 on the day.
North Rock Digital CEO says he will buy more
Despite the risks, Hail Press believes it’s hard to imagine a scenario where you lose money buying USDC below $0.93. In fact, he believes USDC will fully bounce back and announced hefty buying at $0.88 as he believes this is the best risk-reward ratio he has seen in a long time.
Circle’s reserves have been audited by Deloitte, and many investors find solace in this fact. However, recent news from Lookonchain reports that notorious whale CZSamSun has bought USDC for arbitrage. After USDC stabilized, whale deposited stETH and ETH on Aave and Instadapp, borrowed USDT and bought USDC. Whale traded 28,577,700 USDT for 29,961,238 USDC, potentially making a profit of over $1.3 million once USDC returned to steady level.
Traders bet on USDC reversal
Nearly $4 million USDC futures have been liquidated in the past 24 hours, according to data from Coinglass. Some traders are betting on a gradual recovery to the $1 peg by buying the relatively cheap USDC for a potential gain of 10% if the tokens reach the targeted dollar mark.
https://twitter.com/Defi_Maestro/status/1634447538500812803
Leveraged trades can potentially magnify returns for traders who bet on a rebound. Therefore, futures funding rates on crypto exchange Bybit rose as much as 0.3% on Saturday morning. According to data from Coinglass, around $4 million USDC futures were liquidated during this time. One of the developments that misled traders was the decision of Binance and Coinbase, which we quoted as Kriptokoin.com.
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