Silicon Valley Bank: why this crash is dangerous for crypto
Silicon Valley Bank is in trouble. On the risk of a collapse and why crypto is being hit too.
Silicon Valley Bank is in trouble. About the risk of a collapse and why crypto is affected too.
The crypto sector is familiar with bank runs. This week it was announced that Silvergate Bank is being liquidated. The reason is a loss of confidence in the institution, causing customers to withdraw their capital in a panic. A major shock for the crypto industry. After all, it was one of the few crypto-friendly banks that gave companies in the sector access to banking services.
Panic at Silicon Valley Bank
The tech- and crypto-friendly Silicon Valley Bank (SVB) is now also creating uncertainty and a capital flight among its customers. SVB announced that it needed to strengthen its capital position. There is a $1.8 billion financial gap that the bank now wants to close by issuing new shares worth $2.25 billion. In response, the stock price tumbled about 70 percent after-hours on Thursday. Finally, some investors have already pulled their money, and industry leaders like Peter Thiel have advised doing so.
Unlike a regular universal bank, SVB's customers are mainly tech companies and venture-capital firms. On the one hand, this makes Silicon Valley Bank one of the largest banks in the world, ranking 16th by customer deposits.
It also affects the crypto sector
The big danger when a bank fails isn't so much the bank failing itself, but the impact on its customers. So if Silicon Valley Bank has trouble, the US tech sector does too. Among its clients are influential venture-capital firms like Sequoia and Andreessen Horowitz (a16z). They are major financiers of the tech scene and have invested in many of the most notable crypto projects.
How hard the bank from Silicon Valley gets hit will ultimately be determined by market sentiment and the behavior of its customers. If there isn’t further panic and the already started bank run doesn’t spread, SVB should weather it with only a light hit. The $1.8 billion capital shortfall is relatively small compared to the bank's size.
Ultimately, it’s a very thin and not always rational line that determines whether everything ends well or goes off the rails. It would be fatal and foolish to compare Silicon Valley Bank to Silvergate. In terms of size and stability, they are two completely different players.
SVB is not Silvergate
It is much less likely that what happened to Silvergate Bank will happen to SVB as well. But if it does, the crypto sector faces a big problem.
But there is reason for optimism! Influential investors and firms won't let Silicon Valley Bank fail easily. Even the U.S. government, whose regulations have run loose at times, doesn’t want unrest in Silicon Valley.
