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What will happen to Bitcoin if USDC crashes?

By Cryptofab | Cointune | 13 Mar 2023

USDC depegged to 0.9 this weekend due to the collapse of its counterparty Silicon Valley Bank, which holds 7.7% of USDC reserves.

Although Circle (USDC creator) managed to reassure USDC owners and USDC is almost back to its peg, it can be worthwhile to think about the impact of a potential USDC crash on crypto, and particularly on Bitcoin (BTC).

What would happen to BTC if USDC crashes ?

USD Coin (USDC) is a stablecoin which is pegged to the US dollar, meaning that the value of 1 USDC is always equal to 1 USD. As a result, the stability of USDC is important for the broader crypto market, including Bitcoin.

If USDC were to crash, meaning that its value drops significantly below its pegged value of 1 USD, it could have negative effects on Bitcoin and the broader crypto market. Here are a few possible scenarios:

  • Reduced liquidity: USDC is one of the most widely used stablecoins in the cryptocurrency market, and many Bitcoin traders use it as a means of exchange or a store of value. If USDC were to crash, traders might lose confidence in the stability of stablecoins, leading to reduced liquidity in the Bitcoin market.
  • Increased volatility: If USDC were to crash, it could lead to increased volatility in the Bitcoin market. Traders might panic and sell their Bitcoin holdings, leading to a temporary drop in BTC price. On the other hand, some traders might see this as an opportunity to buy Bitcoin at a lower price, leading to increased buying pressure and potentially driving BTC price back up.
  • Shift to other stablecoins: If USDC were to crash, traders might shift to other stablecoins like Tether (USDT) or DAI. This could lead to increased demand for these stablecoins and potentially drive up their prices, while reducing demand for Bitcoin in the short term.

Overall, while a USDC crash could have some short-term effects on Bitcoin, the long-term impact would likely depend on the underlying reasons for the crash and the actions taken by market participants in response.

Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.

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