‘Fiat Is Fragile’ — Silicon Valley Bank’s Collapse Sparks Finger-Pointing and Concerns of Contagion
Silicon Valley Bank (SVB) has become the center of attention after its collapse prompted the U.S. Federal Deposit Insurance Corporation (FDIC) to shut the bank down on Friday. It was the largest U.S. bank failure since 2008, and various alleged catalysts have been pointed to. Some believe venture capitalists caused a bank run, while others blame the U.S. Federal Reserve’s rate hikes. Economist and gold bug Peter Schiff said on Friday that the U.S. banking system would experience more trouble ahead. He and several speculators believe that these financial institutions hold mountains of long-term treasuries.
Calls for SVB Intervention as Market Observers Predict Larger Financial Collapse in the U.S.
Over the past week, two U.S. banking institutions, Silvergate Bank and Silicon Valley Bank (SVB) failed. SVB’s collapse was the largest banking failure since Washington Mutual (Wamu) in 2008, which was blamed on expanding branches too quickly and holding massive amounts of subprime mortgages lent to so-called unqualified buyers.
Before its collapse, Wamu held $188.3 billion in deposits, while SVB is estimated to have lost around $175.4 billion in deposits. However, while SVB’s deposits at the end of December 2022 were $175.4 billion, customers attempted to remove $42 billion on Thursday alone. It’s safe to say that SVB’s demise was a lot faster than Wamu’s collapse at the end of 2008.
Just days before its collapse, SVB attempted to strengthen its balance sheet by announcing the need to raise $2.25 billion. The bank also sold its available-for-sale (AFS) bond portfolio for $21 billion, resulting in a $1.8 billion loss from the sale. SVB is well-known for banking tech startups and venture capital (VC) money, and some market observers believe that these clients caused a bank run.
“This was a hysteria-induced bank run caused by VCs,” said Ryan Falvey, a fintech investor at Restive Ventures, in an interview with CNBC on Friday. “This is going to be remembered as one of the ultimate cases of an industry cutting off its nose to spite its face,” he added.
Other analysts and market observers are blaming the illogical inverted yield curve that long and short-term Treasuries are facing today, as well as the U.S. Federal Reserve rate hikes. Soona Amhaz, founder and managing partner at Volt Capital, said: “The open secret is that technically most U.S. banks are bankrupt right now, as they’re all sitting on long-duration treasuries that are underwater in a 4% interest rate environment.”
Economist and gold bug Peter Schiff shares a similar view to Amhaz, expecting a much larger financial collapse in the United States. “The U.S. banking system is on the verge of a much bigger collapse than 2008. Banks own long-term paper at extremely low-interest rates,” Schiff stated. He continued:
They can’t compete with short-term Treasuries. Mass withdrawals from depositors seeking higher yields will result in a wave of bank failures.
Craft Ventures executive David Sacks took to Twitter, calling on Powell to intervene and prevent a possible contagion. “Where is Powell? Where is Yellen? Stop this crisis NOW,” Sacks tweeted. “Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday’s opening, or there will be contagion and the crisis will spread.”
Billionaire and Galaxy Digital founder Mike Novogratz also weighed in, expressing surprise that the Fed would let depositors lose money in Silicon Valley Bank. “Are all banks going to be treated like hedge funds? Seems like a policy mistake,” Novogratz stated. Shapeshift founder Erik Voorhees ridiculed the call for Fed intervention on Twitter, stating, “Fiat is fragile.”
SVB’s issues have impacted the crypto economy, particularly the stablecoin economy backed by fiat reserves. Circle disclosed that it had $3.3 billion of cash supporting usd coin (USDC) trapped in the bank, causing USDC to unpeg from the U.S. dollar parity. As of 10:30 a.m. on March 11, 2023, USDC is trading for $0.912 per unit. This unpegging has also led to five other stablecoins losing their pegs. Furthermore, on Saturday, Coinbase, Binance, and Crypto.com temporarily suspended USDC trades and conversions.
Tags in this story Balance Sheet, Bank Failure, Bank Run, banking tech startups, Bankruptcy, collapse, contagion, deposits, Economist, FDIC, Fiat, Galaxy Digital, illogical inverted yield curve, interest rates, long-duration treasuries, long-term treasuries, Peter Schiff, policy mistake, Powell, rate hikes, Shapeshift, short-term Treasuries, Silicon Valley Bank, Silvergate Bank, speculators, subprime mortgages, SVB, SVB deposits, U.S. Federal Deposit Insurance Corporation, U.S. Federal Reserve, unqualified buyers, Venture Capital, Venture Capitalists, Withdrawals, Yellen
What do you think about the opinions surrounding the SVB failure? Share your thoughts in the comments section below.
Makerdao Issues Emergency Proposal to Address $3.1B in USDC Collateral After Stablecoin Depegging Incident NEWS | 3 hours ago USDC Stablecoin Depegging Causes Concern Among Crypto Advocates, 5 Other Stablecoins Slip Below Parity NEWS | 5 hours ago
Image Credits: Shutterstock, Pixabay, Wiki Commons
Makerdao Issues Emergency Proposal to Address $3.1B in USDC Collateral After Stablecoin Depegging Incident
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Read disclaimerShow comments
More Popular News
In Case You Missed It
Today’s Top Ethereum and Bitcoin Mining Devices Continue to Rake in Profits
As the crypto economy hovers just under $2 trillion in value, application-specific integrated circuit (ASIC) mining devices are making decent profits. While ASIC miners can still mine ethereum, a 1.5 gigahash (GH/s) Ethash mining device can rake in $51.58 per … read more.
UAE Airliner Emirates to Launch NFTs and Experiences in the Metaverse Fed’s Bullard Wants to Raise Bank Rate to 3.5% by Year’s End, Hints at 75 Basis Point Rate Hike Economist Predicts the Fed’s Response to Inflation Will Push Crypto Higher Terra’s Algorithmic Dollar-Pegged Crypto UST Is Now the Third-Largest Stablecoin