Crypto Industry Feels Impact of Silicon Valley Bank Collapse

In a span of three days, Silicon Valley Bank (SVB) collapsed, causing stablecoins to depeg, and prompting regulators in the United States and the United Kingdom to prepare emergency plans. Small businesses, venture capitalists, and other depositors who had funds stuck at the California tech bank were left fearful. Here are the latest developments on the troubled bank:

On March 10, Silicon Valley Bank was shut down by California’s financial watchdog. The California regulator appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits. However, the FDIC only insures up to $250,000 per depositor, per institution and per ownership category. The bank held over $5 billion in funds from major venture capital firms. Silicon Valley Bank is one of the top 20 largest banks in the United States, providing banking services to crypto-friendly venture companies, such as Sequoia Capital and Andreessen Horowitz.

On the same day, the Bank of England announced that SVB UK would stop making payments or accepting deposits, and it would apply to the court to place SVB UK into a “Bank Insolvency Procedure.”

The bank’s downfall was rapid and came after management announced that they needed to raise $2.25 billion in stock to shore up operations. Its stock price subsequently plunged, falling over 60% on March 9.

On March 11, reports emerged of the crypto industry’s exposure to the failed bank. Circle had $3.3 billion in SVB. Circle’s USDC stablecoin depegged and lost over 10% of its value, leading to a domino effect that knocked several stablecoins from their pegs as well. Fear of contagion mounted rapidly, with regional banks seen as particularly at risk.

On March 12, regulators in the United States and United Kingdom began to take action to deal with the SVB collapse. The Bank of London made a formal bid for the U.K. branch of SVB. Bloomberg reported that the FDIC had been conducting an auction process for SVB on the night of March 11. The Wall Street Journal reported that bidding closed at 14:00 ET March 12. The administration of U.S. President Joe Biden is also reported to be preparing “material action.”