Crypto’s resilience amid bank failures
Silicon Valley Bank’s collapse kicked off a dramatic series of events that’s still playing out across financial markets, including crypto. [Mariia Shalabaieva via Unsplash]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Crypto prices have been resilient amid bank failures. A closer look at how the downfall of Silicon Valley Bank and Signature Bank impacted crypto markets.
Key cryptoverse quotes. An a16z executive says the SEC has gone off the rails, and one web3 expert warns that AI needs to be verifiable.
Noteworthy numbers. The size of Beeple’s massive new digital art studio, and other key stats to know this week.
MARKET UPDATE
How crypto markets reacted to the collapse of Silicon Valley Bank and Signature Bank
No doubt you’ve seen the headlines by now: Silicon Valley Bank, which served much of the startup industry in the U.S., was closed by the Federal Deposit Insurance Corporation (FDIC) after a bank run led to an abrupt liquidity crisis last week. Days later, Signature Bank, which had been the one of the biggest banking providers to the crypto industry in the U.S., was also shuttered by regulators.
But as the dramatic banking meltdowns continue to dominate the news, Bitcoin, after initially faltering, has gained about 15% since last Wednesday, when the trouble started at SVB. So, why is BTC rising in exceedingly choppy waters? We’re taking a closer look, and explaining the basics behind the collapse of SVB and Signature.
What were Silicon Valley Bank and Signature Bank?
Silicon Valley Bank was the 16th largest bank in the U.S., with a reported $209 billion in assets when regulators shuttered it last Friday. Roughly half of all venture capital backed startups in the U.S. held money at SVB. The bank had been preferred by startups because they often allowed easier access to capital compared to traditional banks.
Signature Bank, which had more than $110 billion in assets at the end of 2022, had some exposure to crypto companies (including Coinbase, which expects to fully recover funds), offering them 24/7 instant settlement services, a key advantage for always-open crypto markets. Much of the bank’s growth in recent years had come from crypto industry-related deposits.
What caused SVB and Signature to fail so quickly?
SVB’s demise was tied to years of near-zero interest rates, a highly concentrated deposit base (VC-backed tech startups), and the speed of social media.
With low interest rates and plenty of VC and tech company cash in hand, SVB poured money into seemingly low-risk, long-term bonds to try and earn money. But when interest rates began to rise in 2022 (tanking bond prices) SVB’s bond holdings began to decline in value.
Meanwhile, a slowdown in VC funding amid increasing macroeconomic pressure led companies to withdraw more money than normal from SVB, forcing the bank to try to meet demand by selling some bond investments at a $2 billion loss.
Among tech industry circles across social media, this news set off fears that SVB was in crisis. And since most deposits at SVB were uninsured due to exceeding the $250,000 FDIC insurance limit, clients rushed to withdraw their funds from SVB at the same time — $42 billion in a single day — prompting the government to take control of the bank to protect depositors.
Signature Bank’s closure was essentially contagion from SVB’s bank run. Since the vast majority of Signature’s deposits also vastly exceeded the FDIC’s $250,000 insurance limit, many depositors moved to get their funds out. This led regulators to seize the bank out of fear of broader contagion, despite Signature executives believing they had enough capital to meet all withdrawal requests.
How have crypto markets responded so far?
Bitcoin quickly cratered last Thursday as fears grew about SVB’s collapse and the potential for larger contagion throughout the financial system. And USDC, the stablecoin run by Circle, also fell below its peg of $1 because more than $3 billion of its reserves were held at SVB, leaving Circle unable to process some redemptions over the weekend.
By Sunday night, after days of uncertainty, the federal government stepped in and promised to guarantee all uninsured deposits at SVB and Signature Bank. By the time markets opened on Monday morning, Bitcoin was already recovering, and USDC was back to its $1 peg.
On Tuesday, the release of the latest Consumer Price index showed that inflation fell slightly in February. This lower number, in combination with the banking failures, left some investors optimistic that the Federal Reserve wouldn’t continue to aggressively raise interest rates, helping to send BTC above $26,500 – a nine-month high.
As one analyst put it to Bloomberg: “While dark clouds sit over Silicon Valley, Bitcoin is booming.”
Why it matters… Despite the past week’s financial turmoil, BTC’s resilience amid a largely risk-off environment can be seen as affirming part of its original thesis. Bitcoin was developed in direct response to the 2008 financial crisis, in particular its bank bailouts, with the goal of providing anybody with a digital currency that can’t be controlled by any centralized financial institutions: “Bitcoin's beauty lies in its ability to store value in a decentralized manner backed by math, without requiring humans to validate or support it,” as Tatiana Koffman put it in an op-ed for CoinDesk. “Bitcoin,” said Koffman, “was made for this moment, and it seems the market agrees.”
TAKES
Circle’s CEO on the irony of protecting crypto from the banking system and other key quotes from the week
ChatWEB3… “The consequences of an AI trained on malicious or inaccurate data could be disastrous,” Scott Dykstra recently told Decrypt. The CTO of web3 data firm Space and Time issued the Skynet-esque warning while offering a web3 solution: “Web3 operates on transparency, traceability, and most importantly: verifiability… AI has to be verifiable.”
Full circle… “It’s somewhat ironic that there has been a lot of talk of protecting the banking system from crypto, here we are in a situation where we are trying to protect a digital dollar from the banking system,” was how Jeremy Allaire, the CEO of Circle, characterized having to navigate the fallout from Silicon Valley Bank’s collapse, which briefly destabilized the dollar peg of Circle’s USDC stablecoin.
SECrazy… “The SEC is completely out of control,” was how Brian Quintenz, the head of policy at Andreessen Horowitz (a16z), described the recent onslaught of enforcement actions by the government agency against the crypto industry. Quintenz argued that these moves risked putting the U.S. behind other jurisdictions when it comes to establishing regulatory clarity for crypto businesses. “The United States has to make a decision about whether or not it will embrace and support innovators in this country,” he said.
NUMBERS TO KNOW
50,000 sq ft.
The size of pioneering NFT artist Beeple’s new art studio in Charleston, SC. Beeple Studios is the artist’s creative headquarters and acts as a community-fostering gallery space to showcase work from other digital art luminaries. Beeple (real name: Mike Winkelmann) made NFT history when he sold his “Everydays: The First 5,000 Days” for $69.3 million at a Christie’s auction in March 2021.
10,000
Number of roles the Meta will cut in its second round of layoffs since November. CEO Mark Zuckerberg made the announcement a day after the company said it would be “winding down” NFT support. Zuckerberg noted that during Meta’s so-called “year of efficiency,” the company will focus heavily on AI, but that “building the metaverse … remains central to defining the future of social connection.”
20 minutes
Time it took for Starbucks’ new “Journey Stamps” NFTs to completely sell out last Thursday. Priced at $100 each, the coffee giant’s NFTs are part of its new web3 membership program called Starbucks Odyssey, which debuted in December and promised “immersive coffee experiences.” The program offers perks like virtual classes and exclusive merch, but notably, not free coffee.
TUNE IN
How web3 and NFTs could help filmmakers flip the script on crowdfunding movies
Coinbase is spotlighting stories from the community about how crypto is solving real problems around the world. This week, we’re looking at how NFTs and crypto are helping filmmakers crowdfund the kinds of movies they want to make and empowering fans to fund the kinds of movies they want to see, while being more closely involved in the creative process. Join host Yusuf Omar as he travels to Hollywood and chats with filmmaker Julie Pacino about how NFTs could enable more storytellers to find new audiences.
DISCLAIMER
This material is the property of Coinbase, Inc., its parent and affiliates (“Coinbase”). The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Coinbase or its employees and summarizes information and articles with respect to cryptocurrencies or related topics that the author believes may be of interest.
TOKEN TRIVIA
Which cryptocurrency uses the Lightning Network?
A
BTC
B
ETH
C
SOL
D
All of the above
Find the answer below.
Trivia Answer
A
BTC
