The crypto ‘contagion’ that helped bring down SVB (2024)
"I think, if it hadn't been for FTX and the extreme nervousness about crypto, that this wouldn't have happened," Frank told POLITICO this week. "That wasn't something that could have been anticipated by regulators."
FTX, the crypto exchange that collapsed in November amid allegations of massive fraud, capped a year of turmoil in crypto markets, as investors began withdrawing funds from riskier ventures in response to rising interest rates, which in turn exposed the shaky foundations underpinning the industry. The ensuing “crypto winter” saw the value of the industry plummet by two-thirds, from a peak of $3 trillion in 2021.
Policymakers sought to reassure the public that volatility in the crypto market, blighted by scams and charlatans who sought to profit from investors’ fear of missing out, would naturally be contained. With the collapse of SVB, that claim is facing its biggest test yet.
Patient zero
Under the contagion theory, "patient zero" could be traced back to the implosion of TerraUSD, an "algorithmic stablecoin" that relied on financial engineering to keep its value on par with the U.S. dollar. That promise fell short in May last year following a mass sell-off, creating panic among investors who had used the virtual asset as a safe haven to park cash between taking punts on the crypto market. The origin of the crash is still subject to debate but rising interest rates are often cited as one of the main culprits.
TerraUSD’s demise was catastrophic for a major crypto hedge fund called Three Arrows Capital, dubbed 3AC. The money managers had invested $200 million into Luna, a crypto token whose value was used to prop up TerraUSD, which had become the third largest stablecoin on the market. A British Virgin Islands court ordered 3AC to liquidate its assets at the end of June.
The fund’s end created even more problems for the industry. Major crypto lending businesses, such as BlockFi, Celsius Network and Voyager, had lent hundreds of millions of dollars to 3AC to finance its market bets and were now facing massive losses.
Silicon Valley Bank (SVB) is a commercial bank division of First Citizens BancShares. The bank was previously the primary subsidiary of SVB Financial Group, a publicly traded bank holding company that had offices in 15 U.S. states and over a dozen international jurisdictions.
https://en.wikipedia.org › wiki › Silicon_Valley_Bank
to liquidate underwater assets to accommodate its clients, while trying to handle losses on bond portfolios and an outsized bet on interest rates. As word got out, the withdrawals turned into a bank run as frictionless and hype-driven as a crypto bubble.
Why did it collapse? The collapse happened for multiple reasons, including a lack of diversification and a classic bank run, where many customers withdrew their deposits simultaneously due to fears of the bank's solvency. Many of SVB's depositors were startup companies.
Firstly, the study's findings indicate that global banks experienced a strong contagion effect, highlighting the interconnectedness and vulnerability of the global banking system. This suggests that the failure of SVB had a ripple effect, leading to increased financial distress among other banks.
Tiantian Kullander (November 2022): Co-founder of Amber Group, died unexpectedly in his sleep. Park Mo (December 2022): Found dead outside his home, believed to have committed suicide amid allegations of financial misconduct. Bob Lee (April 2023): Founder of CashApp, was killed under mysterious circ*mstances.
Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full as Washington rushed to keep fallout from the collapse of the large institution from sweeping through the financial ...
By Matt Stoller. On March 12, the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve invoked emergency lending authority to backstop the debt of two large regional banks, Silicon Valley Bank and Signature Bank.
When SVB collapsed, crypto market faced a blow after one of the largest operators of USDC, Circle announced that it had $3.3 billion of reserves backing the token which was stored with the bank. Other major crypto companies such as Coinbase Global Inc. and Paxos Inc.
“Contagion” is the idea that some event can cause a chain reaction or domino effect among banks. For example, when one bank (or possibly a nonfinancial firm) fails, this, it is argued, can cause depositors at other banks to withdraw their deposits.
SVB's collapse is unlikely to indicate systemic risk to the broader banking system, although contagion will spread. SVB's assets are mostly US Treasury bonds, which are at little risk of default, in contrast to mortgage-backed securities in the 2008-09 bank failures.
If you have cryptosporidiosis you should: not swim for at least two weeks after your diarrhoea has stopped. not share towels or linen for at least two weeks after your diarrhoea has stopped. not share, touch or prepare food that other people may eat for at least 48 hours after your diarrhoea has stopped.
Dirty cryptocurrency, similar to "dirty" money, refers to digital assets that are associated with criminal transactions or illegal activities. → Examples of when a cryptocurrency can be considered "dirty"
In cryptocurrency trading, a bull trap is the process by which entrants to a market buy an asset at local or macro highs, only for the trend to break down immediately.
Mt Gox is synonymous with the biggest theft from a bitcoin exchange platform, the mother of all attacks. Launched in July 2010, Mt Gox rose as far as handling over 70% of all bitcoin transactions.
Binance founder and CEO Changpeng Zhao (commonly known as CZ) was the crypto billionaire who lost the most money following the crypto crisis of 2022, with a net worth drop amounting to 82 billion U.S. dollars.
Unfortunately, most of the accounts in Silicon Valley Bank held more than $250,000 of deposits, meaning most of the funds were uninsured. 12 In most cases, this would mean account holders would lose any money above that threshold.
Is SVB now a part of First Citizens Bank? Silicon Valley Bank was acquired by First Citizens Bank on March 27, 2023. Silicon Valley Bank is open and operating as a division of First Citizens Bank serving the same investor and innovation economy clients that it has for the past 40 years.
Both Silicon Valley Bank and SVB Private were placed in receivership and sold to First Citizens Bank. SVB Securities was sold to its management in July 2023 and renamed Leerink Partners. SVB Capital was sold in May 2024 to a newly formed entity affiliated with Pinegrove Capital Partners.
With total assets of $ 209 billion,1 SVB was among the top 20 largest commercial banks in the US in 2022. Five days later, we witnessed the intervention of the Swiss authorities in the CS bank, after several years of scandals and mismanagement, which led to multi-billion dollar losses.
Address: Apt. 814 34339 Sauer Islands, Hirtheville, GA 02446-8771
Phone: +337636892828
Job: Lead Hospitality Designer
Hobby: Urban exploration, Tai chi, Lockpicking, Fashion, Gunsmithing, Pottery, Geocaching
Introduction: My name is Ray Christiansen, I am a fair, good, cute, gentle, vast, glamorous, excited person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
