Governments all around the world were in a panic as they attempted to figure out the impact of Silicon Valley Bank’s collapse, the biggest bank failure in the US since the 2008 global recession, on digital start-ups, other financial institutions, and even pension funds. But cryptocurrency investors and executives, who have had to deal with a very turbulent market over the previous year, seized the opportunity to say “I told you so”.
The collapse of Silicon Valley Bank, Silvergate, and Signature Bank exposed the weakness of the conventional banking industry and robbed cryptocurrency of its main American fiat on-ramps.
The majority of analysts concur that unfavorable market circumstances and subpar risk management played a significant role in both Silvergate’s and Silicon Valley Bank’s collapses.
Much controversy surrounded the closure of Signature. Several sources claim that when U.S. regulators chose to take over the bank, it was not insolvent and its capital outflow had substantially stabilized. Many in the cryptocurrency sector believed it to be a political move to drive the business outside of the US.
The two top financial institutions in the US that offered banking services to cryptocurrency startups were Silvergate and Signature. It will be far more difficult for cryptocurrency companies to interact with the dollar-based financial system after their shutdowns.
Meanwhile, it appears that the collapse of Silicon Valley Bank had an impact on the entire world’s banking industry. The second-largest Swiss banking firm, Credit Suisse, is experiencing a serious crisis that necessitated the Swiss Central Bank’s intervention with a $54 billion lifeline.
According to reports, other important cryptocurrency companies including Coinbase Global Inc. and Paxos Inc. are exposed to these collapsed US banks. Signature Bank especially is said to be one of the largest lenders of crypto.
Bloomberg previously stated that as a result of the collapse of the FTX exchange, Signature had started to withdraw from digital assets, but as of March 8, it still had $16.5 billion in client deposits tied to cryptocurrencies. Fast transfers between clients, including hedge funds and exchanges, were also made possible by Signature and Silvergate, promoting the liquidity of digital assets.
Menon claims that the action is intended to stop the banking industry from spreading, but uncertainty may make credit conditions worse.
But as changes in these banks take place, the cryptocurrency market has been erratic, showing a seesaw pattern in their performance. Also, US regulators reassuring depositors and borrowers of the safety of their funds in SVB and Signature Bank has contributed to easing the bearish market storm.
Lessons for crypto investors:
1. Avoid investing in highly leveraged companies and choose businesses with little to no debt instead. For example , banks have more debt than, a digital company, which has little to none.
2. Never blindly listen to analysts or media when investing in stocks. In fact Forbes put SVB among America’s best banks.
3. Protect your capital and avoid permanent losses. Hold great companies that are undervalued, and hold through the volatility. If you bought great companies for less than what they’re worth, it’s impossible to lose money on a collective basis.