Did you think the fall of the FTX platform was the last bloodbath of this never-ending bear market ? Well, be aware that since the fall of Do Kwon 's Terra blockchain , bankruptcies have followed one after another, in an ever more powerful domino effect.
On Wednesday, Silvergate Bank, known as one of the banks most closely collaborating with crypto companies, was forced to voluntarily liquidate its assets and cease all operations. Having become essential for players in the crypto industry (given its Silvergate Exchange Network payment system ), its bankruptcy could have far-reaching repercussions for both the technology sector and the cryptocurrency market.
A few days later, on Friday, March 10, the closure of Silicon Valley Bank (SBV), ordered by the California Department of Financial Services and Insurance, dealt another crushing blow to Wall Street. Indeed, it was the second-largest bank failure in American history, after the spectacular collapse of Washington Mutual (sold to JPMorgan Chase) during the 2008 financial crisis.
The banking panic did not spare Silicon Valley Bank
Silicon Valley Bank (SVB) is not just any bank. A few months ago, SVB reported having over $212 billion in assets and ranking among the top 20 banks in the world. It is the leading lender to startups and major tech companies globally. While traditional finance companies are the most affected, it's important to note that SVB counts major players in the crypto industry among its clients. Crypto companies like Circle, BlockFi, Avalanche, and Yuga Labs (the company behind BAYC ) are therefore also directly exposed.
It was a turbulent week for Silicon Valley Bank, as evidenced by SIVB's stock price, which plummeted following rumors that the bank was seeking to raise approximately $2 billion to cover its losses. The loss of confidence began to spread from there. Indeed, numerous investment funds reportedly advised their clients to withdraw their funds. Companies including MicroStrategy, founded by Michael Saylor , and those linked to Andreessen Horowitz and Sequoia, withdrew their capital, resulting in over $42 billion in withdrawals on Thursday alone.
This is a classic example of what's called a "bank panic" or bank run . The following day, the Nasdaq suspended all trading of SIVB stock.
The outcome of Silicon Valley, seized by the FDIC, is still uncertain even if a rescue plan is likely being discussed in order to avoid a wider spread in the sector.
Pressure on Circle’s USDC stablecoin
Circle, the company that issues the USDC stablecoin , has over $3,3 billion locked up in Silicon Valley Bank. Furthermore, its latest audit, conducted on January 31, 2023, revealed that the company held approximately 20% of its reserves in six financial institutions, including Silvergate (now bankrupt) and Silicon Valley Bank, which is also bankrupt.
This is why there are significant concerns about USDC today. With a market capitalization of over $42 billion, USDC is the second most widely used stablecoin in the world after USDT. Circle has attempted to reassure its customers, stating that USDC will continue to operate normally. The company asserted that it is "currently protecting USDC from a black swan event in the US banking system."
The announcement was followed by Coinbase's statement that the company was "temporarily suspending conversions to USDC:USD, related to the bank closures over the weekend."
Following this, USDC lost its peg to the dollar, falling by 12% according to CoinGecko at the time of writing. This is based on Binance's announcement that same day of a "temporary suspension of automatic USDC to BUSD conversion due to current market conditions."
This suspension of conversions highlights the new difficulties that crypto companies will have to face, which no longer benefit from the banking services of Silvergate in particular.
What about other crypto companies?
Most certainly in the days to follow, new announcements will shake the market. Many companies such as Avalanche or Yuga Labs have specified that they hold liquidity within Silicon Valley Bank, but on a limited basis. Thus, the exposure to the liquidation of the bank would appear not to have significant repercussions.
On social networks, many companies announce their level of exposure and many of them claim to have none.
Ryan Wyatt, head of Polygon Labs, announced on Twitter that no companies related to or affiliated with Polygon were exposed to SVB. Similarly, Tether, the originator of the USDT stablecoin, has stated that it has no exposure to SBV. Similarly, Anatoly Yakovenko, the co-founder of the Solana blockchain, claimed that neither Solana Labs nor the Solana Foundation were exposed to SVB.
The trading platform Bybit also announced that it has no exposure to SBV.
All these announcements could limit the spread of banking panic initiated by Silicon Valley Bank.
However, this latest bankruptcy of such a major bank also testifies to the profoundly unstable nature of the banking and, a fortiori, monetary system of the United States…
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