(中文按此) Is the stablecoin no longer stable? This time, it's finally USDC's turn to have issues, which should have been the most compliant stablecoin. I believe many people in the crypto space, including myself, hold USDC. In this article, I provide my perspective from several angles, including emphasizing the importance of capital safety during potential financial crises, the possibility of conspiracy theories behind the USDC incident, and the potential domino effect.
*This website does not provide any investment advice. Please make your own judgment on the huge risks involved in the crypto market.
(Updated on March 12: The original article was written on March 11, HKT, when the USDC price was around $0.92. In the morning of March 12, Circle made an official announcement (Coindesk), causing the USDC price to rebound to $0.97 in Hong Kong time. However, I believe the meaning of my original article has not changed, so I have decided to publish it.)
Sell USDC, But BTC/ETH?
Silicon Valley Bank (SVB) is facing issues that may affect Circle's reserves to back USDC, causing USDC to depeg. At the time of writing, the USDC price is $0.92, representing a discount of about 8%. We can only know what will happen later. Based on my years of experience in the capital market, we cannot know what kind of scenario "Big Brother" is arranging. Is the USDC turmoil just a FUD? Will it return to $1 later? I cannot accurately predict this. Therefore, staying safe is the most important thing. So even if there is a discount, I think people should still sell their USDC. What should we exchange it for? If there is no way to exchange it for fiat currency, consider exchanging it for BTC or ETH. If the USDC turmoil ends and the market returns to normal, I bet BTC and ETH would rise more than 8%. If USDC collapses and becomes UST 2.0, then USDC may be zeroed but I boldly assert that BTC and ETH will not be zeroed either.
Let's don't complicating things with the scenario of BTC and ETH. If you sell USDC at an 8% discount, and it turns out to be just another FUD, then think of the 8% as insurance premiums. When you buy accident insurance, you don't really want an accident to happen. Do you?
Many stablecoins have depegged in the past, some are FUD, and some have completely collapsed. The potential outcomes of what may happen next are vast and can be imagined in many different storylines, but we must ask ourselves, "What if I am wrong?" Stablecoins are designed to be stable to serve as reliable reserves, but if they become unstable, they lose their purpose. In my opinion, capital safety should be the top priority, and therefore, I cannot continue to hold USDC as it can no longer fulfill its intended function. (Of course, if you wish to speculate on the possibility of USDC returning to its $1 peg, that is a different story.)
Any conspiracy behind the USDC collapse?
On Crypto Twitter, many experts analyze the situation and the mainstream opinion is that the risk of USDC is limited. While there is a chance of loss, it will not go to zero, because the vast majority of Circle's USD assets are still very safe. After the FUD, the market will return to normal. However, what I want to point out is not the problem with USDC itself, but whether there is a larger conspiracy behind it.
Firstly, from SVB's impact on Circle, is it purely accidental or is there another story? Could Circle also be an institution that Big Brother has his eye on? If even Circle, which has been approved by the US government, can be targeted, would BitFinex behind USDT, a stablecoin with a larger market cap, still be safe? I am very skeptical about this.
In addition, many people use Kraken to trade between crypto and fiat. If they want to exchange back to USD on Kraken, there is another possibility: will the US government target to Kraken too? Remember when the US government recently banned Kraken from doing staking business and fined them heavily? Kraken was previously seeking to obtain a banking license.
Also, consider that Binance has been continuously targeted by US regulatory agencies earlier, and its stablecoin BUSD is to be phased out.
A possible domino effect
Initially, my perception was that Circle was the "golden child" of the US government and the most reputable stablecoin issuer. However, with the crisis of SVB and the current situation of USDC, I cannot completely rule out the possibility that this turmoil is more serious than that of FTX and Terra, even though the chances seem very small. It is not uncommon for the market to underestimate the severity of a financial crisis in its early stages. If some Silicon Valley-based crypto companies and funds suffer losses due to the SVB incident and need to sell other cryptos to improve liquidity, a domino effect will occur.
The domino effect may not immediately happen now. For example, if USDC rebounds to $0.95 or even $1, it does not mean that the storm is over, as it may just be a short-covering rally and may fall again. As history has shown, a crisis can often take months to play out fully. This is what happened with UST, which went through several months of up and down before the irreversible collapse occurred. Especially this time, the serious depegging of USDC happened over the weekend, which is worth pondering.
What's the Endgame?
In fact, "stablecoins" are a false proposition, so another possible storyline is that eventually all fiat-based stablecoins will disappear, leaving only two camps in the crypto world: (i) decentralized coins such as BTC and ETH vs (ii) centralized CBDCs, or central bank digital currencies. "Stablecoins" such as USDC and USDT, which are operated in the private sector, will be the top targets for governments around the world because it has already reached the level of national security. In any case, if something happens to USDC, it may signal that the US government wants to completely ban USD stablecoins. I don't know how likely this possibility is, but the probability is certainly non-zero, and if the US does so, its allies will certainly join force with it.
As an aside, there are signs that China is planning to turn Hong Kong into a web3 paradise. As a layman in politics, I can't help but wonder if there is a larger plan at work, and if it is related to the recent crackdown on crypto companies in the US. I leave it up to you to judge.
After the USDC crisis, I believe that BTC's position as a decentralized reserve currency will be further strengthened. The question is how violent the crisis will be, and I really don't know, nor do I think I can guess. I can only assume different scenarios, analyze their potential returns and risks, and make the most balanced strategy, always asking myself "what if I'm wrong?".
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