You may have heard by now that Silicon Valley Bank failed, making it the most significant bank failure in the United States since the 2008 financial crisis and the second largest in U.S. history. After a bank run depleted the company’s capital last Friday, officials moved in to seize control of the institution.
The failure of Silicon Valley Bank has already begun to affect the cryptocurrency markets, and its impacts will be felt throughout the IT sector.
So, what’s going on?
As the Federal Reserve raised interest rates and many depositors tried to withdraw their money simultaneously, SVB’s investments took a big hit. Because of the high demand, SVB had to sell assets at a significant loss, which prompted additional depositors to withdraw their funds out of panic quickly.
The bank’s collapse might cause short-term liquidity problems. Still, according to executives from several exchanges interviewed by Business Standard, this would not significantly influence the market in the long run.
Among the crypto-friendly services offered by SVB are cryptocurrency custody and lending.
Recent cryptocurrency business failures may have contributed to the climate that sparked this bank run. Another bank that mainly dealt with the IT industry collapsed a short time before Silicon Valley Bank. Silvergate Bank declared bankruptcy and liquidation its assets on March 8. The cryptocurrency sector relied heavily on Silvergate Bank since it was widely recognized as one of the most crypto-friendly banking institutions.
Once U.S. authorities shut down the SVB on Friday, the cryptocurrency market went into a tailspin. The cryptocurrency market cap reached $914 billion as Bitcoin’s price dropped below $20,000.
After that, a cryptocurrency firm Circle disclosed $3.3 billion in reserves held by SVB. This is equivalent to about 8% of the reserves supporting the USDC stablecoin, according to CoinDesk.
But, on Monday, the value of Bitcoin was over $24,000, the value of USDC was $0.999, and the value of the whole cryptocurrency market was above $1 trillion, at $1.07 trillion.
Crypto companies that had money in SVB: – Ripple, BlockFi, Circle, Pantera, Avalanche, Yuga Labs, Proof, Nova Labs, and Dapper Labs.
Customers of Silicon Valley Bank have yet to determine what will happen next. Some in the IT industry are worried about the ability of the many startups that are banking with the bank to meet payroll in the next few weeks. How much money will be returned to bank clients is a mystery.
Advice from Money
Cryptocurrency prices hit an all-time high in the autumn of 2021 but have since plummeted and stayed low for 15 months. The post-SVB bounce is encouraging, but investors should still exercise caution.
The value of cryptocurrency, like any other item in this market, may rapidly grow and decrease. The consensus among financial experts is that just a tiny percentage of a portfolio should be held in cryptocurrencies, and even that should be no more than an investor can afford to lose entirely.