Less than a week after crypto’s main bank, Silvergate, ailed, Silicon Valley Bank (SVB) collapsed following a bank run that drained its capital.
Being the second-biggest bank failure since independence and the largest this decade, SVB triggered a lot of financial crises in centralized finance and decentralized finance in the past week.
This article highlights the impacts of SVB’s collapse on tokens in the crypto ecosystem, especially tokens held by the best crypto wallets in Australia.
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Overview of Silicon Valley Bank Collapse
Silicon Valley Bank is a commercial bank that has served the tech and crypto industry for years. It banked and lent funds to giant international tech companies and venture capital.
Unlike other financial institutions, SVB provided capital for nearly half of all US VC-backed startups, healthcare companies, and some crypto wallet companies.
Most investments the banks made were risky, and the origin of the bank’s failure can be traced to the COVID-19 pandemic. At the peak of the lockdown, when remote employment was common, the tech industry flourished, and so did SVB. As of the 2022 first quarter, Silicon Valley Bank had over $200 billion in deposits.
The company made a series of investments in treasury bonds and mortgage-backed securities. Unfortunately, the U.S. Federal Reserve began raising interest rates. As a result, SVB investments dipped, and the cost of lending money to tech companies increased due to the recalibration of the tech industry.
SVB sold most of its assets at a loss of $1.8 billion, announced it needed to raise capital, and by Thursday, its customers panicked and withdrew over $42 billion in deposits.
Impact on the Crypto Industry
Because of how bad the collapse was, the second largest stablecoin, USDC, pegged at $1 lost value. It dipped below $0.90 over the weekend. Although it has recovered and is now worth $1.01, the effects have rippled all over the crypto industry.
Some analysts say that the recent failures within the crypto industry added to the hostility that resulted in this collapse. Here are some crypto companies with significant holdings in SVB:
Ripple
Over the weekend, Brad Garlinghouse, Ripple CEO, announced the company got hit by the bank run. He tweeted that SVB was one of Ripple’s banking partners and had some of its capital. He calmed users by stating that the company is still financially solid.
BlockFi
According to documents filed on Friday regarding BlockFi’s bankruptcy proceedings, failed cryptocurrency lender BlockFi has $227 million in funds held at SVB. BlockFi filed for bankruptcy in November following FTX’s demise.
The FDIC’s deposit insurance supposedly does not cover such money because it is invested in a money market mutual fund, which might be against the law under bankruptcy regulations.
Circle
The effects of the collapse on Circle were evident in the USDC dip to $0.89. The dip followed closely after the firm revealed that SVB held some cash reserves.
In a statement on Friday, Circle management announced that they would continue operating normally as SVB was one of six giant banks managing their cash balance. Last week, Circle cut ties with Silvergate before it shut down.
Pantera
Pantera is one of the world’s largest crypto-friend VC firms and has an unspecified amount with SVB. The level of exposure to the Silicon Valley Bank’s failure is unknown, but it could be significant.
During an SEC filing last month, it revealed SVB was one of three custodians. of its private funds.
What’s Next?
Many crypto users and companies banking with Silicon Valley Bank want to transfer most of their holdings from the failed firm. But it’s unclear what the regulators would decide or if the government will bail the bank out.
In the meantime, holders of circle tokens are actively converting their USDC to other stablecoins. Unfortunately, there’s excess use of the Ethereum network due to these transfers, so the gas fees are very high.
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