SVB Bank Collapse, How Affect Crypto and Stock?

Market situation

US stocks fell significantly on Friday in all three Dow Jones S&P 500 and Nasdaq indexes. However, gold and oil rose to around 1872 USD/ounce and 76 USD/barrel.

Bitcoin slightly recovered to around $20,000. Market capitalization is up but still under $1 trillion.

What caused Silvergate Bank to close?

In the past, a huge problem for companies in the crypto market, especially exchanges, was getting a trusted banking partner to accept cooperation and provide services for them. It will help exchanges to help investors deposit money on the floor. The reason banks are hesitant to provide services to crypto companies is because they are wary of the risks related to money laundering that can occur on exchanges if exchanges are not strictly regulated by law. anti money laundering. Here, banks see the risk as greater than the profit opportunity, so they decide not to participate.

After that, Silvergate bank started providing services to crypto companies to help solve this problem.

Silvergate Bank is a California-based bank that has been in business since 1988. In 2013, Silvergate CEO Alan Lane personally invested in Bitcoin and Silvergate launched an initiative to begin serving customers who use Bitcoin. use electronic money. The company started offering services to crypto users in 2016.

Silvergate Bank has since grown rapidly, reaching $1.9 billion in assets and 250 customers in 2017. The company was publicly listed on the US stock exchange in November 2019 at a share price of 13. USD. And by November 2021, their stock price has increased by 1,580 percent to $219 as the crypto market enters a strong bull season.

Besides the usual services, Silvergate has also provided Silvergate Exchange Network (SEN) services for exchanges. With this service, Silvergate will provide additional 24/7 services that are very essential for crypto companies that can trade 24 hours a day and without weekends like regular banks. Until now, Silvergate closed, crypto companies will have to find other partners to accept to provide this service for them.

As one of two banks that provide services to crypto companies, Silvergate’s position is very good. Like other banks, they use customer deposits for storage and partly to invest in US bonds and other assets as required by banking law.

In investing in public bonds, banks can withdraw principal and interest until maturity. If they need money urgently when many depositors come to withdraw, banks will need to raise money to pay depositors. One of the options they have to do, as in the current case of Silvergate, will need to publicize the bonds they are holding. But the times when these bonds are sold before maturity or interest rates rise will cause them to sell at a loss for this investment. And the Fed’s interest rate also affects the yield on public bonds and indirectly affects the banks.

Plus, the crypto market goes down and a lot of crypto companies crash (like FTX) causing their funds to go down faster. Up to now, other partners of Silvergate such as Coinbase, Bitstamp, Circle, … have stopped cooperating with this bank, leading to them having to raise money to pay all partners. It caused Silvergate to close because of the huge loss and the partners stopped cooperating. Silvergate closes they will pay the full deposit to the customer. The loss here will affect investors in the bank.

Silicon Valley Bank’s collapse and its impact

The same thing happened and caused Silicon Valley Bank (abbreviation: SVB) to collapse in the past day. The US financial regulator closed Silicon Valley Bank and took control of its deposits. It is the largest US bank failure since the global financial crisis more than a decade ago.

As of the end of December, SVB had total assets of about $209 billion and total deposits of $175.4 billion, according to the press release. Although not a big bank, it is the second largest bank to fall into bankruptcy in US history.

SVB’s two main services are providing banking services to technology companies and providing capital for these companies to grow. Last year was a bad year for the tech companies that led them to stop depositing and there were companies coming to withdraw money from this bank. The collapse of SVB was similar to Silvergate because they were under pressure from high interest rates and had to sell at a loss the bonds they were holding. It resulted in the company losing up to $1.8 billion.

According to a press release from regulators, the California Department of Financial Protection and Innovation has closed the SVB and designated the FDIC as the recipient. In contrast, the FDIC established the Santa Clara National Deposit Insurance Bank, which currently holds insured deposits from SVB.

FDIC standard insurance covers up to $250,000 per depositor, per bank, per type of account holder. The FDIC said uninsured depositors will receive a claim certificate on their balances. The regulator said it will pay an advance dividend to uninsured depositors next week, with potential additional dividend payments when the regulator sells SVB’s assets.

According to some statistics, only about 2.7% of all their clients who deposit less than $250,000 are insured, with the rest having amounts above this mark. A lot of tech companies are stuck with deposits in SBV and no results yet. This worries a lot of people and its impact is huge and a lot of companies.

Treasury Secretary Janet Yellen said during a hearing before the House Ways and Means Committee on Friday morning that she was “monitoring very carefully” developments at several banks. Yellen then convened a meeting of top officials at the Fed, FDIC and the Monetary Authority to discuss the situation at SVB specifically.

This event shows the great influence of the interest rate increase, it also indirectly causes banks like Silvergate or SVB to collapse. This event is one that even the Fed did not expect and the collapse of this bank will have a huge impact not only on businesses, traditional financial markets, but also crypto.