Circle (USDC) Is Expected To Successfully Face This Redemption Next Week, Experts Say
In the world of cryptocurrency, stability and reliability are essential for investors to maintain their confidence in the industry. Therefore, the news of Circle potentially facing the redemption of 10%-30% of the total issuance of USDC, worth $4-12 billion, has sent shockwaves through the crypto market.
According to the author, @Loki_Zeng, who is a former researcher at China National Think Tank and Huobi Global, Circle is expected to successfully face this redemption next week. The company has released detailed information, including the fact that Circle’s funds at SVB are already in the transfer sequence and should be completed by next Monday, following FDIC rules.
0/n 周六发完USDC的分析以后没有太关注后续进展，大部分时间在休息和陪家人，到现在信息明朗了很多，事情也有了很多变化，继续把未来一段时间的展望补上。
全文版见Mirror：《USDC事件分析（二）：FUD的终点，熊市下半场的起点》https://t.co/nDp8fQ8LT7
— 0xLoki 🦇🔊 (@Loki_Zeng) March 12, 2023
However, there is still a possibility that these funds may not be credited. Even in this case, Circle would only need time to recover or partially recover the funds, not suffer total loss. Furthermore, Circle has the ability to fill the gap and ensure a 1:1 exchange, even if the worst-case scenario occurs.
The remaining cash deposits are $5.4 billion at BNY Mellon and $1 billion at Customers Bank. None of this new information is bad news, as BNY Mellon is considered a low-risk bank, and Customers Bank is a medium-risk bank. Even if the $3.3 billion with SVB is lost in extreme circumstances, Circle has the ability to fill the gap. If this information is true, there is no risk of USDC becoming insolvent.
At the current time, the market is comfortable with the price of USDC at $0.96. This marks the end of the first phase of the Circle-SVB investment opportunity, which was based on the logic of whether USDC has the ability to pay. The market is always right, and the price of USDC has fallen within the reasonable range of $0.895 to $1.000.
The market’s confidence has clearly increased, and the pricing of USDC has entered a reasonable range. However, the $0.04 difference still indicates market concerns, mainly about a run on USDC. The core issue of the second round of the game is whether there will be a run on USDC, and if so, what will happen?
In terms of the trend of USDC’s price, there may be variables, but what will happen next week is almost certain. The first inevitable event is that Circle will open its redemption channel. This is indicated by all the information Circle has released, and the company has the ability to ensure 1:1 full payment.
The second reason is that Circle’s liquidity is sufficient to support this move. Even if we only consider the funds from BNY Mellon and Customers Bank, Circle has $6.4 billion in cash and a 100% ability to pay. In the absence of a funding gap, opening the redemption channel is the quickest way to stabilize the coin’s price and eliminate FUD (fear, uncertainty, and doubt).
The second inevitable event is that there will be a large number of redemptions (or “run on USDC”) after Circle opens the redemption channel. This demand for redemption includes two aspects: (1) arbitrage opportunities, which will exist as long as USDC does not return to 1U, and (2) hedging needs, as investors may be concerned about the systemic risk of USDC and US banks and therefore want to exchange USDC for fiat currency.
With Circle opening the redemption channel, those who hold USDC will have the opportunity to sell. However, the price may not necessarily return to $1.00, as the redemption process may take some time to complete. Therefore, investors need to make timely decisions to avoid losses.
On the other hand, the redemption of USDC could lead to a negative impact on the crypto industry. The first and most significant impact is the potential for a run on USDC, resulting in a price drop that could cause other stablecoins to decline in value. The second potential impact is the regulatory backlash that could arise, as the redemption of USDC could attract regulatory scrutiny.
However, the author also mentions that in the long run, the redemption could have positive effects on the industry. It could help improve the transparency and reliability of stablecoins and reduce the risk of another “Black Swan” event in the future. It could also lead to more investors becoming aware of the risks associated with stablecoins and encourage them to choose more regulated and secure assets.
In conclusion, while the redemption of USDC can have both positive and negative impacts on the crypto industry, it is essential to remember that the market is always right. The price of USDC may fluctuate, but as long as Circle can maintain its 1:1 exchange rate, it is unlikely to have a significant impact on the crypto market as a whole. The redemption could lead to improved transparency and reliability of stablecoins in the future, which would benefit the industry as a whole.
Read more:
- Why Did Silicon Valley Bank Collapse Within Just 48 Hours?
- USDC Recovers To $0.96 After Circle Burns $649.3 Million In Tokens