If as of today, you have not heard of the catastrophic collapse of the 16th largest commercial bank in the United State of America, you probably living somewhere under the rock, in an unknown land with no access to electricity, mobile phones, or computers and no internet, then your excuse is valid.
What Happened to Silicon Valley Bank?
For the love of knowledge and knowledge sharing, I will bring you to speed briefly on what has happened so you best understand where the above subject matter of this article is coming from, and where we heading, without wasting much of our time.
Silicon Valley Bank, a subsidiary of SVB Financial Group, on March 10, 2023, suffered what is believed to be the largest bank failure in recent history, in fact, it is the second largest bank failure in U.S history.
SVB whose operation is spread across 13 countries with headquarters situated in Santa Clara, California, suffered a bank run; A bank run or run on the bank is a situation when many bank customers withdraw their funds from a bank almost at the same time or period because of fear or uncertain unfavorable future of the bank.
The magnitude of loss suffered by SVB led to a cry for help where they were forced to sell long-term assets to meet liquidity demand. The main reason that triggered a run on the bank is still not very clear.
Now I have been able to bring you up to speed on the status quo of the Silicon Valley Bank saga, you might be asking what then is good and bad for crypto, and how does it correlate?
these events certainly shook several industries, and the crypto industry took its fair blow.
The Negative Impact Towards Crypto
It is very uncommon to have a volatile chart on stablecoins. Unfortunately, it happens that the Circle USDC lost its $1 peg to the US dollar due to the SVB collapse. The reason came from $3.3bn of USDC’s cash reserves remaining with SVB. Fear, Uncertainty, and Doubt clouded the minds of many. USDC was trading at a discounted low of $0.87 according to records available on the coin market cap. Furthermore, many do not know what the aftermath of the SBV collapse could cause.
DAI
DAI, a decentralized stablecoin built on the Ethereum network, whose issuance and development are managed by the Maker Protocol and the MakerDAO decentralized autonomous organization, suffered quite a similar fate to USDC. The token lost its peg due to the FUD that surrounded USDC, USDC covers more than 60% of the collateralization of DAI.
Ripple
Ripple, the CEO Brad Garlinghouse has come out to say;
Setting the record straight on SVB Qs: Ripple had some exposure to SVB – it was a banking partner and held some of our cash balance. Fortunately, we expect NO disruption to our day-to-day business, and already held a majority of our USD w/ a broader network of bank partners.
BlockFi
BLOCKFI filed for bankruptcy after the crypto industry was left in the rumble due to the scandalized bankruptcy of the FTX Global Crypto Exchange, the difficult but necessary decision they made, as a result, to pause most activities on their platform.
It was reviewed after the wake of the SVB collapse that BLOCKFI has a whopping over $200 million dollars held at the bank. Fear and uncertainty once strike people’s hearts, especially vendors and employees. But, Christine Okike of Kirkland & Ellis was quick to play down that fear, in her words;
“BlockFi is fine … We have access to cash to operate in the normal course, including paying employees and vendors.”
Hold up, hold up, there is a twist to this. According to the statement above, she said knowing too well SVB is an FDIC bank. SVB is the first Federal Deposit Insurance Corporation-insured bank to fail in 2023.
As per the bankruptcy filling by BLOCKFI, as it concerns the SVB collapse, the result has come back in what looks like the end of the tunnel for Blockfi, according to the summary of the report hearing process
BlockFi’s claim of $227m in Silicon Valley Bank is true. However, those funds are in a money market mutual fund, they are not FDIC-secured. FDIC safety net does not cover such funds. This many argued could be a problem with keeping in compliance with bankruptcy law.
Blockfi’s whole saga from FTX’s scandalous bankruptcy to now SVB bank run can be likely to say they jumped from the frying pan into the fire.
Enough of the bad. Let’s talk a little about the Good of the SVB’s unfortunate event and how it benefits the crypto industry.
The Positive Impact Towards Crypto
The Silicon valley bank collapse was a result of a run at the bank. A run at a bank is the immediate pulling out of funds from a certain bank or banks at almost the same period by customers and investors leaving such banks with little or no liquidity. Now the big question where did all the funds they pulled from the bank go?
Well if you think they move it to another bank in such uncertain times you might be right. This is especially for mere customers who use the bank for the sole aim of deposit and withdrawal. However, I am quite certain that customers who are investment savvy and institutional investors move their funds to crypto.
Bitcoin was struggling between 20k and 21k some technical analysts already call short for 18k prior to the unfortunate event.
Just in few hours after the news make around that the 16th largest commercial bank in the US has suffered a massive bank run, We saw bitcoin and the major part of the crypto market rally as the sleeping giant hit 26k in four days. This shows many indeed see Bitcoin as a safe haven in times of credit crunch and financial crisis.
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