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Today, everyone is aware of the Silicon Valley Bank collapse, the panic that followed as a result, and, entering a new week, the solution that has been found.
As a quick overview, the Silicon Valley Bank failure was the biggest US banking collapse since 2008, but it has been summed up as a conventional bank run. The bank had invested mostly in treasury bonds, but rising interest rates later forced it to sell assets at a loss of $1.8 billion, and launched a $2.2 billion stock sale.
Investors got spooked very quickly and the run ensued, ensuring, in effect, that it was all over for the sixteenth largest US lender. Then, over the weekend, federal regulators moved in to prevent the breakdown from getting out of control, ensuring that all depositors would have access to their funds through the newly created backstop facility.
Notably, Silicon Valley Bank is considered an institution primarily focused on technology, and with more than 2,500 VC firms using its services, it operates, in its own words, as the “financial partner of the innovation economy”.
Although Silicon Valley Bank is not a crypto bank, the indirect effect of its hard work is very clear in crypto world, as events unfold, the USDC stablecoin is in the process of being de-pegged from the dollar, falling, at one point, to below 90 cents. This is because USDC issuer Circle holds about 8% of its reserves in Silicon Valley Bank, and even though that situation is now heading resolvedit was a significant shake.
The case for Bitcoins
These dramatic events now raise questions around the stability of the crypto environment, and how sentiment could be affected in an industry still suffering from the 2022 disaster. A simple indicator that can show how the ecosystem is feeling, is the price of bitcoin, and in this case, one might assume that the problem is not too severe. The leading cryptocurrency only briefly dipped below $20,000 during the crisis, and has since recovered with the news that Silicon Valley Bank will recover their funds.
It’s also worth remembering that despite the speculation being uncovered about wider contagion and damage–both to the banking and tech industries–the whole situation is being highlighted by some prominent commentators as a vindication of Bitcoin’s power.
Marty Bent, Director of Cathedra Bitcoin, a company that develops and operates Bitcoin mining infrastructure, believes the development demonstrates the advantages of blockchain-based systems.
Bitcoin prop values have never been clearer; eliminates existing systemic counterparty and impairment risks by providing people with a distributed digital cash system that allows people to hold rare assets for themselves with relative ease.
—Marty Bent (@MartyBent) March 12, 2023
Bent also makes multi-signature (multisig) wallets.
Even if bitcoin prices are volatile, it makes sense to allocate a portion of your company’s balance sheet to bitcoins held under multisig custody because you will never be in a situation where you cannot access your funds because someone else is taking a risk with your money. https://t.co/6mNFlj8Lf7
—Marty Bent (@MartyBent) March 12, 2023
Suspicion and Speculation
There have been ongoing allegations surrounding possible hidden political and regulatory motives at work, stemming in part from events at Silicon Valley Bank that occurred soon after Silvergate Bank, which is closely associated with the crypto industry, announced it would be pursuing a voluntary liquidation.
In addition, the regulator has now also closed Signature Bank, an establishment that reportedly, last September, received almost a quarter of its deposits from the crypto sector, despite intending to limit its crypto exposure. This decision is announced with reference to “strengthening public confidence in our banking system”.
Changpeng Zhao, CEO of a leading crypto exchange Binanceown speculate publicly about “coordinated efforts to close crypto-friendly banks”, although his comments came with the added bullishness: “Banks are closed. The blockchain is still running.”
And this line of thinking is nothing new, as a widely read post by Nic Carter, general partner at Castle Island Ventures and influential voice on crypto, has laid the case for the so-called Operation Choke Point 2.0. The overall idea put forward is a campaign to deny crypto companies access to banking services, and thereby isolate the crypto industry.
It is important to emphasize that not everyone agrees with this thesis, and many observers blame the recent collapse on nothing more than poor planning during extreme circumstances. However, the prevalence of such thinking (the kind that suspects a coordinated plot) indicates that this part of the crypto world is on a fighting foot, and feels that further conflict with existing regulators and institutions is inevitable, but need not be an insurmountable obstacle.< /p>
This is reminiscent of the firm sentiments that did not flinch throughout 2022, when, even when various crypto entities collapsed, it was repeatedly observed that the centralized structure collapsed. On the other hand, when it comes to Bitcoinsand for the world of decentralized finance, the mechanisms at play are still intact and operational.
Social Media Acceleration
One other point of note, with regards to Silicon Valley Bank in particular, is the role that social media is now playing. Real-time crypto chat mostly happens on Twitter, and this platform can be a valuable tool. This was especially evident last year when FTX free-falled, where the most astute investigative analysis was often found on Twitter, sometimes from completely anonymous accounts, often from alternative and independent channels.
However, another change brought about by the high-speed and unrestricted flow of information enabled by social media is that any hint of financial or crypto contagion can explode worldwide very quickly, and without the possibility of being restricted. In the case of the events at Silicon Valley Bank, reasonable line has been drawn from a VC read newsletter called The Diff, to raise attention to bank earnings, warnings issued by Peter Thiel, Twitter amplification, and, ultimately, running a bank.< /p>
For better or for worse, social media is now a key dynamic in the ebb, flow, and occasional highs around finance and crypto, creating the potential for rapid acceleration around unfolding stories.
This article was written by Sam White at www.financemagnates.com.
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