After 39 years, the crypto-friendly Silicon Valley Bank closed with the U.S Financial regulators taking control of its deposits. The fall occurred when depositors withdrew about $42 billion after the bank released a statement that it wanted to raise over $2 billion in additional capital. This attempt to raise additional capital resulted from the bank selling some of its bonds and incurring losses of $1.8 billion. The collapse of SVB has been referred to as the second-largest bank failure in all of American financial history.
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How the SVB collapse affected the crypto market
The SVB collapse raises concerns that the financial sector will be affected. As a technology-centered bank, SVB was invested in crypto firms and VCs and was famous for being a lender to tech start-ups.
The crypto market shook after the USDC Circle announced that it had about $3.3 billion of reserves backing the token in the bank. Prices of major cryptos like Bitcoin and Ethereum experienced a downturn. Stablecoins like Tether also recorded a low, far below the 1:1 peg to the dollar. Similarly, other cryptocurrencies like Dogecoin, Polygon, and Solana recorded steep losses.
The SVB debacle and the revelation that crypto firms had cash reserves with them affected the crypto market as traders sought to move their money.
Seven Popular Cryptocurrencies that have exposure to the SVB collapse
Here is a list of cryptocurrencies with exposure to the SVB collapse
- XRP: Following the tweet of Ripple’s CEO that SVB was a banking partner and had some of their cash balance, XRP, the native token of Ripple, is exposed.
- Circle: Circle is the second-largest stablecoin. Its announcement that SVB was one of the banks with cash reserves led to volatility in the crypto market.
- AVAX: AVAX is the native crypto of Avalanche. The foundation announced a little over $1.6 million in exposure to SVB.
- Proof: A leader in NFTs, Proof revealed that it had cash at SVB without stating the amount tied up there.
- Yuga Labs: The company behind the NFT collection Bored Ape confirmed its exposure to SVB while stating that this will not affect its business.
- Nova Labs: The start-up behind the Helium decentralized network also revealed its exposure to SVB, stating that most of its cash is in other organizations.
- Dapper Labs: Dapper Labs stated that they have minimal cash balances with SVB but maintained that the situation does not materially impact them.
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Looking ahead
This decade has seen several changes in the crypto market, from inflation and high-interest rates to regulatory policies. With a few crypto organizations exposed to the SVB collapse, there may be fears that the crypto market will face a rundown. However, with the Federal Reserve announcing that all deposits would be secured after SVB’s failure, major cryptocurrencies that experienced volatility because of the bank crash became stable.
Looking on the bright side, the collapse of SVB is a plus for decentralized systems. It highlights the flaws in traditional banking while shining the light on decentralization. Thus, we can look forward to when decentralized systems are primarily adopted and evolve to be recognized through regulations.
