ZoneBitcoin EditorialYou thought the fall of the FTX platform was the last bloodbath of this bear market who never ends? Well, know that since the fall of the Terra blockchain from do kwon, all the bankruptcies follow one another, in an ever more powerful domino effect.
This Wednesday, the Silvergate Bank known as one of the banks that collaborates the most with crypto companies has been forced to carry out a voluntary liquidation of its assets and cease all activity. Becoming essential for players in the crypto industry (given its payment network Silvergate Exchange Network), its bankruptcy could have more profound repercussions on the Technology sector on the one hand and that of cryptocurrencies on the other.
A few days later, Friday March 10, the closure of Silicon Valley Bank (SBV) ordered by the California Department of Financial Protection was a new blow to Wall Street. And for good reason, it is the second largest bank failure in all of American history, after the massive bankruptcy ofWashington Mutual (sold to JPMorgan Chase) during the 2008 financial crisis.
The banking panic did not spare Silicon Valley Bank
Silicon Valley Bank is not just any bank. SVB declared a few months ago that it had more than $212 billion in assets and was one of the 20 largest banks in the world. It is the leading bank lending to startups and the largest Tech companies in the world. Thus, the companies most affected are those in traditional finance but you should know that the SVB counts among its clients, important companies in the crypto industry. Crypto companies like Circle, BlockFi, Avalanche and Yuga Labs (the company behind BAIC) are then directly exposed too.
It's been a turbulent week for Silicon Valley Bank, as evidenced by SIVB's shares falling following a rumor circulating in some quarters that the bank was looking to raise around $2 billion to cover its losses. The loss of confidence started to spread from there. Indeed, many investment funds have advised their clients to withdraw their funds. Companies including MicroStrategy, founded by Michael saylor, and companies linked to Andreessen Horowitz and Sequoia then withdrew funds, resulting in more than 42 billion withdrawals for the single day of Thursday.
This is typically what is called a "bank run" or bank run in English. The next day, Nasdaq halted 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
The company Circle, issuer of stablecoin USDC has over $3,3 billion locked up in Silicon Valley Bank. Furthermore, during its last audit carried out on January 31, 2023, the company had approximately 20% of its reserves in 6 financial institutions including Silvergate (bankrupt) and Silicon Valley, also bankrupt…
This is why today there are great concerns about USDC. USDC, with a market capitalization of over $42 billion, is the second most widely used stablecoin in the world after USDT. Circle attempted to reassure its customers that USDC would continue to function normally. The company said it was "currently protecting USDC from a default of black swan in the American 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 anchor to the dollar, falling 12% according to CoinGecko, at the time of writing. This builds on Binance’s announcement that same day that it was “temporarily suspending the automatic conversion of USDC to BUSD, 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.
La Bybit trading platform also announced that it had no exposure to SBV.
All these announcements could limit the spread of banking panic initiated by Silicon Valley Bank.
However, this umpteenth bankruptcy of such an important bank also testifies to the profoundly unstable nature of the banking system and a fortiori currency of the United States…
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