At least this time, the problem didn't seem to be centered on a cryptocurrency business.

 

The unexpected failure of Silicon Valley Bank sparked widespread fear across the technology sector. Crypto CEOs and investors, on the other hand, who have lived through a year of almost nonstop change, have grabbed the opportunity to lecture and reprimand others.

 

Analysts argued that Silicon Valley Bank had made the situation worse by announcing its financial losses not long after Silvergate Capital, a bank with close ties to the cryptocurrency industry, began winding down its operations this past week.

Cryptocurrency CEOs and Investors Criticize Centralized Banking

The supporters of cryptocurrencies pointed the finger at centralized banking as the culprit. They had a superior vision of an alternative financial system, one that was untethered from large banks and other types of gatekeepers.

 

They maintained that the recent crackdown on crypto businesses by government officials had planted the seeds for the collapse of the bank and that these seeds had already begun to germinate.

 

Mo Shaikh, the chief executive of the cryptocurrency startup Aptos Labs, said that the company is seeing "glitches in the machine." This is an excellent chance to pause, take a deep breath, and think about the logistics of decentralization.

 

The mood, however, swiftly turned as a significant cryptocurrency corporation said late on Friday that it had billions of dollars held in custody by Silicon Valley Bank.

 

A so-called stablecoin, which is a digital currency meant to keep its value fixed at $1 at all times, saw an unexpected drop in price, which sent shudders through the market. And the accusatory gestures were sent in both ways.

 

Several investors in technology felt that the crypto world's string of bad actors and overnight failures had conditioned consumers to fear the first indication of problems, which paved the way for the disaster that occurred at Silicon Valley Bank.

 

FTX, a cryptocurrency exchange that was managed by Sam Bankman-Fried, went out of business in November after the cryptocurrency equivalent of a bank run revealed a massive hole in the company's financial statements.

 

The technology industry is defined by the fluctuations of popular start-ups and trends, as well as the fact that crises may be leveraged to advance agendas, and the game of blame is a sign of the factionalism that prevails in the industry.

 

After Silicon Valley Bank collapsed, proponents of cryptocurrencies pointed the finger of blame at the institutions of the conventional financial system for planting the seeds of instability.

 

Several venture capitalists pointed the finger at the widespread fear spread on social media for starting the bank run. Some pointed the finger at the government for the economic policies it had enacted, while others faulted the bank itself for poor management and communication.

 

The discussion is taking place in the wake of a turbulent year for technology businesses, during which the cryptocurrency sector saw a crisis that lasted for several months and some of the major organizations in Silicon Valley undertook enormous layoffs.

Silicon Valley Bank's Downward Spiral and Self-Fulfilling Prophecy

On Wednesday, Silicon Valley Bank said that it had suffered a loss of roughly $2 billion and declared that it would sell off assets to fulfill the demand for withdrawals. This marked the beginning of the bank's downward spiral.

 

The revelation caused panic to spread across the IT sector, and start-up companies scrambled to withdraw their funds as quickly as possible. Their worries ended up becoming a self-fulfilling prophecy, which is something that often occurs during bank runs.

Federal Deposit Insurance Corporation (FDIC) Assumes Ownership of Silicon Valley Bank

Silicon Valley Bank was the most significant financial institution to collapse in the United States since the global economic crisis of 2008. On Friday, the Federal Deposit Insurance Corporation (FDIC) made the announcement that it would be assuming ownership of Silicon Valley Bank.

 

Companies in the technology industry that had money saved up in the bank hurried to pay their staff and their suppliers.

 

According to an order from the California Department of Financial Protection and Innovation, Silicon Valley Bank had a "sound financial condition prior to March 9." According to the decision, it went bankrupt as a result of a run on its assets that was provoked by investors and depositors.

 

It would seem that Silicon Valley Bank has just a somewhat significant presence in the cryptocurrency business.

 

In the past, many big banks have been reluctant to collaborate with cryptocurrency startups due to the high level of legal uncertainty that surrounds a significant portion of the industry.

 

According to Haseeb Qureshi, a crypto investor with the venture capital company Dragonfly, several cryptocurrency start-ups encountered significant challenges while attempting to open accounts at Silicon Valley Bank. This means that our exposure is far lower than what we had expected.

Circle's Cash Reserves at Silicon Valley Bank Cause Concern in Cryptocurrency Market

There was at least one significant deviation from the norm. According to the business's financial documents, the company Circle, which creates stablecoins and acts as a key component in the trading of cryptocurrencies, stores some of its cash reserves at Silicon Valley Bank.

 

Following a day of frenzied speculation about the scope of Circle's exposure, the business disclosed late Friday that $3.3 billion of its $40 billion reserves were still held at Silicon Valley Bank. This news came after a day of conjecture. In a statement that was published on Twitter, Circle said that "Wires initiated on Thursday to remove balances were not yet processed."

Stablecoins and USDC's Price Parity with the Dollar

Stablecoins, in contrast to other, more volatile cryptocurrencies, are designed to maintain a price parity with the dollar. Because of the uncertainty surrounding Circle, the price of its popular stablecoin, USDC, dropped below $1 during trading on Friday and Saturday, which raised worries of another crash within the cryptocurrency sector.

 

Coinbase, one of the largest cryptocurrency exchanges in the world, blocked conversions between USDC and U.S. dollars on Friday evening, citing the high level of market volatility.

Proponents of Cryptocurrencies Highlight the Failure of Centralized Banking

Yet, as the crisis developed, proponents of cryptocurrencies saw the failure of Silicon Valley Bank as an opportunity to highlight points that they have been making since the financial crisis that occurred in 2008. They said that this turmoil demonstrated that existing banking systems were excessively centralized, which contributed to the development of Bitcoin.

 

According to Brad Nickel, who runs the crypto podcast "Mission: DeFi," centralized enterprises have a greater tendency to be obscure. “If cryptocurrency were powering the financial rails of our world, then a lot of things might not happen or would be a lot less severe.”

 

Yet the assault on Silicon Valley also followed a strategy that was reminiscent of crises that erupted in the crypto business last year, culminating in the collapse of FTX. This playbook was similar to how problems were handled during the run on FTX.

 

A collapse of Silicon Valley Bank that was centered on cryptocurrencies, according to skeptics of the cryptocurrency business, would have been far more disastrous for everyone.

 

Mr. Marchese said that if this cryptocurrency bank was not subject to any regulations, then the funds may just vanish. "The system is working," he remarked, referring to the fact that the F.D.I.C. stepped in to manage the issue in an orderly manner after it had become chaotic.

 

In the following days, the FDIC will reimburse depositors at the bank up to a maximum of $250,000 while simultaneously supervising a process to recover the monies that were lost.

 

Danny Moses, an investor at Moses Ventures who is well-known for his part in anticipating the financial catastrophe of 2008 in the film "The Big Short," said that "there is no crypto regulator guaranteeing accounts for $250,000."

Silicon Valley Bank

Silicon Valley Bank (SVB) is a commercial bank based in the United States that was established in 1983 with the purpose of catering to the specific monetary requirements of high-growth technology and life science enterprises, in addition to venture capital and private equity organizations.

 

The headquarters of the bank can be found in Santa Clara, California, which is situated in the middle of Silicon Valley. The bank also maintains offices in a number of other places around the United States and in overseas countries such as Canada, the United Kingdom, China, and Israel.

 

The services of commercial banking, investment banking, private banking, and asset management are only some of the financial options that are made available to SVB's customers.

 

The fledgling enterprises, mid-sized businesses, and major organizations that the bank works with, together with the investors and funds that support them, make up its clientele.

 

In addition to its financial services, SVB also offers its customers access to valuable industry insights and contacts in order to assist them to achieve their business objectives.

 

Since SVB is a specialist bank that focuses on the technology and life science industries, it has a profound awareness of the one-of-a-kind difficulties and possibilities that are faced by enterprises operating in these fields.

 

As a result of this knowledge, it has been a popular option among business owners and investors who are searching for a banking partner that can assist them in navigating the complexity of the sectors in which they operate.

 

The following is a chronology of the events that culminated in the demise of Silicon Valley Bank:

Federal Reserve Raises Rates

Since the beginning of this year, the Federal Reserve has been working to combat rising prices by bringing interest rates up from their historically low levels.

 

As the money that is accessible to investors becomes more costly as a result of rising interest rates, the investors' appetite for risk decreases.

 

This resulted in investors for new technology companies being more risk-averse, which was a negative development for these companies, who are Silicon Valley Bank's key customers.

Cash Crunch Faced By Clients

As a result of higher interest rates, the market for initial public offerings was closed to many new businesses, and the costs associated with private fundraising increased.

 

As a result, some customers of Silicon Valley Bank began withdrawing money in order to satisfy their requirements for liquidity. This resulted in Silicon Valley Bank scrambling this week to find a solution that would allow it to fulfill the withdrawal requests of its clients.

Selling of Bond Portfolio At Loss

The redemptions needed to be funded, therefore, Silicon Valley Bank liquidated a $21 billion bond portfolio on Wednesday. The majority of the bonds in the portfolio were U.S. Treasuries.

 

It had an average yield of 1.79% from the portfolio, which was much lower than the current yield on the 10-year Treasury note, which is roughly 3.9%. Because of this, SVB was compelled to acknowledge a loss of $1.8 billion, which it sought to make up for via capital raising.

Stock Sale

SVB made the announcement on Thursday that in order to close the financial gap, it will be selling a combined total of $2.25 billion worth of ordinary equity and preferred convertible shares.

 

Investors were concerned that the company could need to raise even more cash as a result of customers withdrawing their deposits, which resulted in the shares of the company ending the trading day down by sixty percent.

Failure of the Stock Buying Program

According to a report by Reuters, some SVB customers withdrew their funds from the bank on the recommendation of venture capital companies such as Peter Thiel's Future Fund.

 

The investors, such as General Atlantic, that SVB had lined up for the stock sale were frightened as a result of this, and the attempt to raise funds failed by the late hours of Thursday.

SVB into Receivership

On Friday, SVB made a frantic effort to locate alternate sources of money, one of which was the sale of the firm. However, later on the same day, the Federal Deposit Insurance Corporation (FDIC) made the announcement that SVB had been closed down and put under its receivership.

 

The Federal Deposit Insurance Corporation (FDIC) said that it would try to sell SVB's assets, and that future dividend payments may be provided to depositors who were not covered.

Take Away

The rise of digital assets has created a new era of finance that is increasingly becoming popular among investors and traders.

 

The evolution of the digital space has led to the emergence of innovative financial service providers such as 14digitalxchange which aim to make digital asset trading more accessible and convenient for everyone.

 

With its user-friendly platform and advanced security features, 14digitalxchange is positioning itself as a leading provider of digital asset trading services. As the digital asset market continues to grow and mature, 14digitalxchange is well-positioned to play a critical role in shaping the future of finance.