Sun. Apr 21st, 2024

• The biggest news of the last week has been the banking sector collapses, specifically crypto-friendly banks.
• Silvergate and Silicon Valley Bank (SVB) were two major banks that have recently collapsed due to their exposure to the crypto industry.
• This has caused a lack of trust in banks and lead to speculation around how this collapse would affect stablecoins and other crypto-servicing banks.

Silvergate Collapse

On March 2, in their own SEC filing, Silvergate raised concerns around their solvency and ability to continue operating. This was, in my opinion, undeniably a result of direct and/or indirect exposure to the continuing contagion within the crypto industry created by collapses of Luna, 3AC, and FTX. As expected, a bank run followed from Silvergate partners to distance themselves and withdraw assets. Silvergate’s stock ($SI) immediately tumbled over 50% as reports piled up of clients moving elsewhere. “It is now getting increasingly difficult for crypto companies to establish or sustain relationships with a U.S. bank,” said Ivan Kachkovski, FX and crypto strategist at UBS.

Speculations Around Stablecoins

Speculation piled up around how a Silvergate unwind would affect stablecoins and other crypto-servicing banks. Silvergate has been the main issuer of the second most popular stable coin USDC. Contagion concerns then shifted to Signature Bank, the other popular crypto-servicing bank. “Signature noted that it had previously stated as of Feb. 1, it would no longer support any of its crypto exchange customers in buying and selling amounts of less than $100,000. Signature said in December that it would be reducing its exposure to the crypto sector, although not eliminating it entirely.”

Silvergate Unwinds

On March 8th Silvergate officially announced that they were unwinding operations and liquidating assets via a press release which caused further wide spread contagion with increased uncertainty for banking customers and USDC users..

Silicon Valley Bank Collapse

On March 9th & 10th Silicon Valley Bank suffered from a classic bank run with billions in withdrawals piling up from fractional reserve banking many coming from startup companies causing SVB stock crashing 60%. By end day regulators shut down the bank while assets changed hands over FDIC ownership causing this being 2nd largest bank collapse on U.S history escalating lack of trust on Banks among public traded firms tumbling down even more rapidly .

Circle’s USDC Exposure

With SVB unwind happening attention once again turned towards Circle’s USDC , Second largest stablecoin having USD 43 billion market capitalization , It was reported Circle had undisclosed part from its USD 9 .8 billion cash reserves at now collapsed Silicon Valley Bank leading towards more doubts along with fear & uncertainty across financial markets .

By admin