Who can keep up with the current banking crisis? [82]

Silicon Valley Bank, Silvergate Bank, and Signature Bank, all shut down… anyone else making bets?

Good afternoon, friends!

The insider track of the U.S. banking system implosion feels almost up close and personal after watching three banks crumble in a week. Two of them, Silvergate Bank and Signature are very crypto-friendly banks, and the third is Silicon Valley Bank which catered to a multitude of tech startups and some larger tech firms fitting its name.

We already have somewhat of a handle on what happened to Silvergate, it was already in some sort of trouble before it was going to wind down potentially due to its exposure to FTX – where the company had lost a significant amount of money in the collapse of the exchange, to the order of $1 billion, although it said at the time it was intact.

As for Silicon Valley Bank, it was well known for providing venture capital for technology and life-science companies and thus kept some cash on hand but used a significant amount to buy long-term debt such as Treasury deposits. This would seem like a good investment for steady income, but it also generates a sort of illiquidity if a crunch happens, such as if interest rates were to spike, or inflation were to ratchet up – which is what happened.

Tie that in with a bunch of large, uninsured depositors who are likely to pull up stakes at the first sign of trouble in the economy and you have all the trimmings of an issue when they get spooked. So, what happened? Suddenly SVB found itself in a liquidity crunch when there was a panic among customers who tried to pull their money out and there wasn’t enough money to be had.

The FDIC, the government agency whose job it is to take over when a bank can’t cover its debts, stepped in and (you guessed it) took over.

As for how this affected the crypto world, USD Coin was suddenly impacted because Circle maintains approximately $3.3 billion of its $40 billion reserves at Silicon Valley Bank and this threw the stablecoin into turmoil. Almost immediately, USDC lost its $1 peg and started falling, over the weekend it dipped almost as low as $0.88 according to CoinGecko. During that time Circle posted assurances that it was operating normally.

By the end of the weekend, USDC would recover to its $1 peg once again by Monday morning. This happened shortly after Circle announced that it would cover the $3 billion shortfall and the Fed said that it would cover SVB’s accounts. At about the same time an unknown investor minted a whopping $407.8 million in USDC Saturday.

Although the stablecoin has been holding close to its $1 peg since then; it’s a little iffy to say that it’s “safe” to keep holdings in it right now given the volatile market conditions.

But what then happened with Signature Bank? It seems that it may have been the same thing as SVB, or at least that’s what the New York Department of Financial Services is saying, which says that it took over the bank in order to avoid “systemic risk,” due to contagion from the fall of Silicon Valley Bank.

A U.S. Treasury official reportedly said that the actions of regulators to take over Signature were to prevent limit depositors from pulling even more funds from their accounts and prevent further bank runs – this is the dreaded “systemic risk,” mentioned above.

“The actions that we took today were designed to limit the consequences of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects,” the official said.

In other words, don’t be a bank this week otherwise someone is coming for you. Also, it’s probably going to be a very, very strange week in crypto. As we’re writing this the numbers (and the news) is changing so no doubt this copy is going to be out of date even before we hit send.

As usual, there’ll be some bullet points of news to entertain everyone below and long-form news from the week below the fold. Stay tuned for more news next week and see everyone on the flip side!

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Blockchain Bulletin

• Silvergate Bank announces plans to ‘wind down operations’ and liquidate. Silvergate Capital Corp, the parent company of Silvergate Bank, the “crypto friendly” bank announced that it would shutter banking due to recent financial troubles and regulatory developments, reported Cointelegraph.

• Meta signals end of support for NFTs on Instagram and Facebook. Meta has announced that it is ending support for NFTs on Instagram and Facebook, but will continue to support creators and businesses, reported CoinDesk.

Blockchain Behind the Scenes

• Planet Hollywood and Animoca Brands to launch exclusive NFT club in LA. Play-to-earn gaming giant Animoca Brands and Planet Hollywood to launch an exclusive NFT club in LA that will use Web3 DAO-like mechanics for its membership such as voting on menus and perks called Club 3.

• Coinbase launches ‘wallet-as-a-service’ for business. Coinbase continues its outreach to developers and businesses with the launch of a Wallet-as-a-Service offering that allows businesses to embed wallets easily into their own apps easily – with the objective of fomenting adoption through easier access to crypto.