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Silicon Valley Bank Collapse: Major Developments Over The Last Week – BTC Ready To Shine?

14 Mar 2023

Mitchell Nixon

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There have been rapid developments concerning Silicon Valley Bank (SVB) in the past week, and this breakdown provides an overview of the major events. 

The collapse of SVB occurred suddenly, resulting in stablecoins being depegged, regulators in the United States and the United Kingdom preparing emergency plans, and causing concern among small businesses, venture capitalists, and other depositors who have funds at the California tech bank.

Here are the latest updates on the troubled bank, beginning with the earliest developments:

March 10: Silicon Valley Bank (SVB) shut down by California Financial Regulator

March 10th saw the closure of Silicon Valley Bank by California’s financial regulator following the announcement of a significant sale of assets and stocks to raise more capital.

The reason for the shutdown was not specified, but the California Department of Financial Protection and Innovation appointed the Federal Deposit Insurance Corporation (FDIC) to protect insured deposits. However, the FDIC only covers up to $250,000 per depositor, per institution, and per ownership category, and the bank held over $5 billion in funds from major venture capital firms. 

Silicon Valley Bank is among the top 20 largest banks in the United States and provides banking services to crypto-friendly venture firms like Sequoia Capital and Andreessen Horowitz.

March 10: The world responds to SVB crisis

On March 10, the Bank of England declared that SVB UK would cease payment and deposit acceptance, and it planned to file a court application to place the bank in a “Bank Insolvency Procedure.” 

Meanwhile, depositors from the United States were queuing up to withdraw funds. An unverified report claimed that the FDIC was considering covering 95% of uninsured SVB deposits, with 50% of them to be paid out the following week

The bank’s sudden downfall occurred within 48 hours of management revealing that it required $2.25 billion in stock to support operations, and its stock value plummeted, declining by over 60% on March 9.

March 11: The cryptocurrency market and industry begins to feel the pain

Recent reports suggest that the cryptocurrency industry had exposure to the failed Silicon Valley Bank. Circle, for instance, had $3.3 billion invested in SVB. A spokesperson for Circle told Cointelegraph that they are still waiting for clarity on how the FDIC receivership of SVB will impact its depositors. However, Circle and USDC are currently operating as usual.

Unfortunately, Circle’s USDC stablecoin depegged and lost over 10% of its value, which led to a domino effect causing other stablecoins like DAI, USDD, and FRAX to also depeg. In response, Circle announced that it would use corporate “resources” to cover the shortfall caused by the collapse of SVB.

Per CoinMarketCap, USDC has since pretty much repegged!

March 11: Contagion fears spread

The DeFi community felt the impact as large investors attempted to move their funds away from USDC. MakerDAO, the issuer of DAI, proposed an emergency plan to reduce its $3.1 billion exposure to USDC. Curve Finance, a swapping pool, witnessed unprecedented trading activity of $7 billion on March 11. 

Concerns of contagion grew rapidly, particularly for regional banks, and alarming warnings were issued. Despite this, venture capitalists and others came together to support SVB, stating their willingness to continue working with the bank if it were to be acquired and recapitalised.

March 12: Regulators begin to take action

Regulators in the United States and the United Kingdom responded to the collapse of SVB by taking action. U.S. Treasury Secretary Janet Yellen stated in an interview that the Treasury was focused on addressing the needs of depositors and would not bail out the bank. U.K. Prime Minister Rishi Sunak announced immediate plans to address the short-term operational and cash flow needs of Silicon Valley Bank UK customers.

The Bank of London has submitted a formal bid to acquire the U.K. branch of SVB.

According to Bloomberg, the FDIC conducted an auction process for SVB on the night of March 11, and bidding reportedly closed at 2 pm Eastern Time on March 12, as reported by The Wall Street Journal. Elon Musk expressed interest in buying the bank in a tweet, saying he was “open to the idea.” Additionally, the administration of U.S. President Joe Biden is reportedly preparing to take “material action.”

March 12: Federal Reserve creates a $25b backstop for banks

On March 12, the Federal Reserve Board unveiled the Bank Term Funding Program (BTFP), a $25 billion initiative that provides loans of up to one year to eligible depository institutions, including banks, to address any liquidity challenges they may encounter. The goal of the program is to serve as a backstop and ensure that these institutions have sufficient liquidity to operate effectively.

March 12: Federal Reserve states SVB depositors will be protected

On March 12, U.S. federal regulators, such as U.S. Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg, declared “decisive measures” that would offer complete protection to depositors at Silicon Valley Bank and the recently closed Signature Bank.

In a collective statement, the regulators assured that depositors affected by the Silicon Valley Bank resolution will have full access to their funds beginning March 13, Monday. Additionally, they reiterated that taxpayers will not incur any losses due to the bank’s resolution.

March 13: Biden “firmly committed” to holding those responsible

On March 13, U.S. President Joe Biden expressed his strong commitment to ensuring that those responsible for the SVB collapse are held accountable. He tweeted that he would provide further details in a speech later that day.

March 14: Bitcoin’s response

So, how did BTC react to all of this?

Bitcoin was created in 2009 by Satoshi Nakamoto as a response to the 2008 financial crisis.

This could be the first time in BTC’s infancy that it will experience what it was made to protect against.

If further banks start to fail due to bonds being underwater, then it’s not due to bankster money management practices like in 2008. Instead, it’s a system risk in the financial sector. One that can affect commercial banks.

Will more and more people start to buy Bitcoin? Given it is easy to self-custody? No centralised entity control, such as a government or bank?

Are we starting to see this shift?

Bitcoin since the banking crisis has begun to unfold has put in as much as a 25% + rally – across a weekend of all things!

If SVB does get bailed out, do more and more people lose confidence in the fiat system?

Does quantitative easing and the money printer get blasted once again?

Seems like good reasons for parking yourself in Bitcoin. 

Interesting week of events incoming!