> If you have any money left in crypto at this point, then you get what you deserve.
Yeah, I heard this in 2017 too. In reality neither of us knows how things will look a year from now. Short term will probably be ugly though.
Leverage is a different matter entirely, because "fractional reserve" style financing inflates the money supply. The monetary economy is like a juggling act. Increasing velocity makes it look more valuable, but when velocity slows down, the system becomes insolvent.
Having USDC to compete with USDT puts things in a less risky position, not more. All evidence points to USDC being fully backed. The "bank run" scenario this article alludes to seems like a huge stretch.
Yes, USDC is fully backed at the moment. Mostly by deposits in SBNY. However SBNY has most of its money lent out. Therefore the size of a run that USDC can survive is set by how much investments its banks, mostly SBNY has, which https://www.marketwatch.com/investing/stock/sbny/financials/... says is somewhat over $9 billion.
There is over $50 billion of USDC outstanding. So trying to redeem about 1/5 of it will result in a run on SBNY that SBNY can't handle.
Our financial system knows what to do with that situation. It is outlined in https://www.fdic.gov/consumers/banking/facts/payment.html. SBNY gets shut down, a new bank buys them, and depositors with accounts over $250,000 see their bank accounts reduced TO $250,000. USDC, as the largest of those depositors, would then no longer be backed.
So in the event of a crypto panic, about 80% of the money backing USDC is likely to go poof. Not because USDC did anything wrong, but because that is how banks work. It is not for nothing that banking has been described as "picking up pennies in front of a steamroller".
That is..not how it works. Are you assuming all of SBNY's loans are worthless / bad debt? If SBNY folded the loans would get sold to pay back the creditors. They wouldn't get the full value obviously, but those loans don't just magically disappear. They'd certainly get more than the 20 cents on the dollar you are claiming..
Even your own link covers this..
> If for example, a depositor has only a single account with a balance of $255,000, he or she would be paid $250,000 through FDIC insurance and would receive a claim against the estate of the closed bank for the remaining $5,000 which is not insured. The depositor would be given a Receiver's Certificate as proof of this claim and would receive payments as the assets of the bank are liquidated.
Someone being so confidently and condescendingly wrong is peak hackernews.
However, as the article points out, if USDC gave most of the money to a bank (SBNY), then it is not obvious that the bank put it in short term treasuries - the bank could have done the usual thing of putting it into longer term loans ("maturity transformation"). Given that USDC constitutes nearly half of that bank's balance sheet, but cash/cash equivalents less than a third, things could get interesting on the way down.
[1] > In the 1990s, the Democratic political adviser James Carville said: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” https://www.bloomberg.com/news/articles/2018-01-29/the-daily...
[2] see eg. https://www.finra.org/filing-reporting/trace/data/trace-trea... (click on a recent weekly report) or https://www.statista.com/statistics/189302/trading-volume-of...
[3] see eg. https://www.bloomberg.com/news/articles/2022-05-24/treasurie... (Note: also a running gag in Matt Levine's Money Stuff column...)
That's why you have FDIC insurance to cover the time period between say, a 30 day treasury and the worst case bank run.
That being said, such an event hasn't really happened in decades. So it's relatively low chance of happening.
Well, usually banks use your money for much riskier loans (business loans, personal loans, mortgages) which is why you need FDIC. Not because treasuries take too long to sell.
The volume on US treasuries is like half a trillion a day, so it shouldn't take very long to liquidate even large amounts of USDC's holdings..
US Treasuries are down like 10% this year.
Yes, a bank can liquidate, but at a loss, a 10% loss in this case. The bank would rather hold-onto maturity, which could be 30-days or 90-days for some of the shorter bonds.
1-month US Treasuries are 1.13% APY today, June 14th, 2022.
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So if you had bought a 6-month US Treasury on Jan 19th, you'd have a 1-month Treasury with .36% APY.
That's worth much much less than the current 1-month US Treasuries that are available, so you'd be forced to sell at a loss if customers requested their money back.
It's not 10% less, or anywhere close to it. You are only missing out on roughly (1/12) * (0.0113 - 0.0036) * (treasury amount) vs a 1 month treasury bought today..I'm having trouble finding a price chart for 1 month treasuries.
6-month is obviously more sensitive to the rate drop than 1 month, but the 10% number you are referencing is almost certainly for long term treasuries, not short term..
BND is not "just" long terms, its a mix of all kinds of bonds. BSV is a mix exclusively of short term (~5 years or less).
VBLAX, Vanguard's long-term bond ETF, is down 23% YTD.
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Given how BND is largely composed of a mix of US Treasuries (of many different maturities), I think the 10% quickie estimate I gave earlier is correct. I'm buying/selling these things in my portfolio, so I've got a good idea of how they're performing.
I just looked it up, Circle says they only hold treasures that mature in <= 3 months, so yeah I think even 6.5% is a massive overestimate to how volatile their treasury portfolio is..probably more like <1% which is easy to cover if they just hold a tiny bit of the deposits in cash..
BSV is literally named "Vanguard Short-Term Bond ETF".
That being said, the only "standardized" terms I'm aware of are Bills (less than 1 year), bonds (greater than 10 years), and Notes (1 to 10 years).
In any case, it is clear that BSV is considered short-term by Vanguard and its investors. So I'm more than willing to believe in Vanguard's language over yours.
My point is that your 10% figure is not applicable to the treasuries Circle claims to hold. You can call them whatever you want.
What do you think will happen to the value of all those treasuries? Even short term ones will decline in value. Not only because of the actual rate increase, but also over the expectation of future rate increases to clamp down on inflation.
10% drop? Probably not. But any drop in price followed by a bankrun would end up in insolvency.
I know that even a portfolio consisting of nearly exclusively treasuries can still decline in value. That's all I'm saying. Banks, even with their high quality debt instruments, aren't immune to the effects of a bank run.
The value of those short term notes still climbs up and down daily on the market. With a big enough decline, issues can arise.
Still, previously I didn't want to hold USDT anymore; now I don't want to hold USDC anymore either.
The FDIC is designed to cover solvency issues, not liquidity ones. It does not kick in until afterva bank has failed.