Circle’s USDC, a prominent dollar-pegged stablecoin, encountered significant volatility today. Notably, the stablecoin’s value dipped to as low as $0.74 in three separate instances. This instability surfaced amid a broader market sell-off triggered by skepticism over approving a Bitcoin ETF this month.
The fluctuations in USDC’s value were observed on the Binance exchange. Specifically, the USDC value against its USDT (Tether) trading pair experienced sharp drops. These instances were recorded between 12:10 and 12:21 UTC, where USDC’s value plummeted to $0.74, $0.80, and $0.79, respectively. However, it is critical to note that the value rebounded almost immediately to its $1 peg on each occasion.
Analyzing the liquidity and market depth
The underlying cause of these fluctuations can be attributed to liquidity issues. When a significant sell order of USDC for USDT is placed and the liquidity is insufficient, such a depegging can occur. Analysis of market depth on Binance reveals an imbalance. For the USDC/USDT pair, orders are disproportionately stacked above the $1 mark, with a notable $26 million in orders up to $1.02. Conversely, orders below the $1 peg are considerably lower, totaling around $6.1 million down to $0.98. This imbalance implies that a sell order exceeding $6.1 million would cause the price to fall below $0.98.
At 12:10 UTC, the trading volume hit $6.2 million, followed by $4.3 million at 12:21 UTC. Additionally, the broader market context saw over $500 million liquidated in derivative positions. This followed a report by Matrixport, projecting the SEC’s likely rejection of several spot Bitcoin ETF applications this month.
Historical stability and recent depegs
Historically, USDC has maintained a relatively stable peg to the dollar. However, recent months have seen slight deviations. None of these past depegs has exceeded a 4% change in either direction. The most notable previous incident occurred in March following the collapse of Silicon Valley Bank. During this event, the coin’s value dropped to $0.86. This decline was linked to the revelation that Circle had a portion of its funds, backing the stablecoin, held at the troubled bank.
The current fluctuations in USDC’s value underscore the inherent risks and volatility in the cryptocurrency market. Despite being a stablecoin, the coin is not immune to market dynamics and liquidity challenges. Investors and traders in the crypto space should remain vigilant and informed about such developments. Circle’s commitment to maintaining USDC’s stability in the face of these challenges will be crucial in the days ahead.
