BigONE Insights: Understanding The SVB Situation And Its Impact On Cryptocurrency
After a swift collapse, the US banking regulators shut down the “financial partner of the innovation economy,” as the Silicon Valley Bank (SVB) called itself. Interestingly, it is the second-largest bank failure in US history, and the first such incident since the 2008 financial crisis. Washington Mutual Bank had gone bankrupt in September 2008. It had $307 billion in assets and $188 billion in deposits. SVB had assets worth $209 billion and deposits worth $175 billion at the time of its demise.
It has sent shock waves across the tech and banking industries. Undoubtedly, the bank catered to a very specific crowd of start-ups, venture capitalists (VCs) and tech firms, but before its collapse, SVB was the 16th biggest bank in the US. Moreover, it is the second bank, after Silvergate, that collapsed last week. It was followed by the US banking regulators shutting down the Signature Bank on Sunday, the third bank to close its doors in a week. This past week has been quite unprecedented for the cryptocurrency industry, and this article seeks to provide insights into the SVB situation, and what it means for the future of the cryptocurrency industry.
Blowback Of The SVB Collapse
USD Coin (USDC), the world’s fifth-largest cryptocurrency, fell to an all-time low on Saturday after Circle, the US firm behind the coin, revealed that $3.3 billion of its reserves were held at Silicon Valley Bank. USDC is a stablecoin, which are cryptocurrencies designed to keep their value stable. USDC is designed to have the same value as the US dollar. The coin, however, deviated from its 1:1 dollar peg and dropped as low as $0.87 on Saturday morning. Circle was one of the high-profile cryptocurrency companies that suffered the most from SVB’s demise.
Furthermore, the market suffered dips over the weekend, but is gaining strength as of writing, with ETH and BTC nearly 10% higher from weekend lows. According to reports, the FDIC insures deposits up to $250,000. Customers who deposited less than $250,000 will have their money returned. Others will almost certainly receive partial payment.
On Sunday, the Joe Biden administration announced that taxpayers would incur no losses as a result of the SVB’s resolution. In a joint statement, FDIC, the Fed and the Department of Treasury said the US banking system remains resilient and “on a solid foundation”.
According to the joint statement, depositors will have access to “all of their money” beginning Monday. This remains to be seen as there are also reports that about 93% of deposits were un-insured by FDIC.
According to a petition filed on Sunday with the US government by Y Combinator, approximately 10,000 small businesses with deposits in SVB will fail to make payroll in the next 30 days. The collapse is expected to affect approximately 100,000 jobs. Despite the collapse of Signature Bank and now SVB, the market has held up so far, and BigONE believes this is a more positive reaction and a sign of the crypto industry’s resilience. We are waiting to see if the US government follows through on their promise to repay all SVB deposits, as this will determine the market’s future direction.