Silvergate, SVB and Signature all played a role in the crypto ecosystem — helping to speed up payments between businesses, and unlocking faster transfers for everyday investors.
Silicon Valley Bank customers are going to have full access to their funds from this morning — following a panicked weekend.
It comes days after SVB was closed by California's Department of Financial Protection and Innovation — with FDIC appointed as the receiver.
That news had seen Bitcoin plunge below $20,000 — but there were far more serious implications for the stablecoin issuer Circle, which had funds tied up in the bank.
USDC had reached an all-time low of $0.8774 as investors digested the news that $3.3 billion in reserves were held at the embattled financial institution. Meanwhile, Tether hit a new 52-week high of $1.03 amid an influx of demand.
Realistically, this was a drop in the bucket when compared with the $40 billion of reserves that Circle had — but a bank run still had the potential to plunge its business into peril.
Over the weekend, USD Coin has been slowly returning to its dollar peg as regulators in the U.K. and U.S. raced to find a solution to Silicon Valley Bank's troubles. Given how this institution counted major healthcare and tech startups among its customers, the fallout from SVB's shutdown could have been severe.
What's Happening in America?
Over in Washington, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell spent the weekend trying to shore up confidence in the U.S. banking system — and prevent contagion from spilling over into an already fragile economy.
All of SVB's deposits, both insured and uninsured, have now been transferred to a "bridge bank" that's going to be operated by the FDIC — and from Monday, normal business hours will be in force, as well as online banking. A statement added:
"Depositors and borrowers will automatically become customers of Silicon Valley Bank, and will have customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before."
Officials went on to stress that official checks from SVB will still clear as normal, and loan customers should continue to make repayments as before. And they added:
"All depositors of the institution will be made whole. No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers. Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed."
It has been a trying week for the U.S. banking sector — with Silvergate Bank firing the starting gun by announcing that it was winding down operations and opting for a voluntary liquidation. This company was a vital cog in the crypto ecosystem because of how it provided fiat on-ramps for exchanges, enabling their customers to convert local currencies into digital assets.
And in a case of really unfortunate timing, SVB also spooked the markets by chalking up a $1.8 billion loss on the sale of a portfolio of assets that were underperforming as a result of recent interest rate rises. It then announced a $2.25 billion share sale — and this news caused the stock to be pummeled on Wall Street.
Over the weekend, New York state regulators went on to announce that Signature Bank was also being closed — and as in the case of SVB, all depositors will have access to their funds from Monday. It had $16.5 billion in crypto-related deposits from its clients.
The Crypto Effect
Bitcoin has staged something of a relief rally over the past 24 hours — surging from $20,540 to highs of $22,728. Compared with 1pm U.K. time on Sunday, it's up 8.8%.
And while there has been a resolution to protect SVB customers, it's important to take a step back and reflect on the impact that this'll have on the crypto industry more widely.
Silvergate, SVB and Signature all played a role in the crypto ecosystem — helping to speed up payments between businesses, and unlocking faster transfers for everyday investors. Liquidity could be substantially affected without such speedy and instantaneous transactions.
The demise of all three financial institutions leaves the digital assets space increasingly isolated from traditional markets — with few banks willing to take their place. Not only could their disappearance make transacting in crypto more inconvenient for the public, but it also has the potential to alienate institutional investors.
And while a long-held goal of crypto companies is to bank the unbanked, Columbia Business School's adjunct professor Austin Campbell told Bloomberg:
"Crypto has basically been de-banked, especially for 24/7 fast payments rails."
This is yet another setback for U.S. crypto companies at a time of heightened regulatory uncertainty, with the SEC taking action against a number of firms.
And it could prompt increasing numbers of American firms to move to other jurisdictions where the regulatory landscape is friendlier or clearer. Coinbase's CEO, Brian Armstrong, has previously expressed fears that this could put the U.S. at a disadvantage as demand for digital assets continues to grow — prompting the likes of China to cement themselves as a market leader.
The Global View
SVB was the 16th-largest bank in America — and without question, it was the largest failure of a U.S. financial institution since the 2008 financial crisis.
And like many other banks, it had a presence internationally, including an arm in Britain.
Silicon Valley Bank U.K. has now been snapped up for the princely sum of £1 — about $1.21 — by the British arm of HSBC, with the group's CEO Noel Quinn declaring:
"This acquisition makes excellent strategic sense for our business in the U.K. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the U.K. and internationally."
Chancellor Jeremy Hunt — the country's finance minister — also stressed that deposits would be protected and no bailout from taxpayers would be necessary.
The weekend's mayhem also affected a small Indian bank called SVC. On social media, panicked concerns about its financial health were raised… all because it had a slightly similar name to SVB.
Stressing that it had no association with Silicon Valley Bank, a statement said:
"We request our members, customers and other stakeholders not to pay attention to baseless rumors and mischief-mongering ... insinuating similarities in brand names."