The Silicon Valley Bank logo is seen at a location in San Francisco, California, USA March 10, 2023.

Personnel | Reuters

US cryptocurrency firm Circle’s USD Coin lost its peg to the dollar and fell to a record low on Saturday morning after the company revealed that it has nearly 8% of its $40 billion in reserves tied up in collapsed lender Silicon Valley Bank.

USDC is known as a stablecoin, which means that the value of the virtual currency is supposed to be tied to a reference currency. USDC is designed to trade at $1, but it fell below 87 cents on Saturday, according to data from CoinDesk.

Regulators stopped SVB Friday and seized its deposits in what has become the America’s biggest bank failure since the financial crisis of 2008. The company’s spectacular implosion began late Wednesday when it surprised investors with news that it needed to raise 2.25 billion dollars to strengthen its balance sheet. What followed was the rapid collapse of a highly respected bank that had grown alongside its technology clients.

In a tweet on Friday, Circle said it has $3.3 billion in remaining reserves with SVB. The company called for the bank’s continuity and said it will follow guidelines from regulators.

The cryptocurrency industry is still picking up the pieces sudden collapse of FTX last year, and the USDC’s break with the dollar could signal more trouble ahead. Stablecoins, like banks, are vulnerable to runs.

SVB customers withdrew a staggering $42 billion in deposits by the end of Thursday, according to a California authority notification. When operations closed that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrape enough collateral from other sources.

If USDC holders get spooked or worry that there is not enough money in reserve, they may also rush to sell or exchange their coins.

Circle did not immediately respond to requests for comment.