By now, everyone is aware of the collapse of Silicon Valley Bank, the panic that ensued as a result, and, going into a new week, the solution that has been struck upon.
As a brief overview, the failure of Silicon Valley Bank is the biggest US banking collapse since 2008, but has been summarized as a conventional bank run. The bank had invested largely in treasury bonds, but rises in interest rates then forced it to sell off assets at a $1.8 billion loss, and launch a $2.2 billion share sale.
Investors became spooked very quickly and a run ensued, ensuring, essentially, that it was all over for the sixteenth largest US lender. Then, over the weekend, federal regulators moved to prevent the damage spiraling out of control, ensuring that all depositors would have access to their funds through a newly created backstop facility.
Notably, Silicon Valley Bank is regarded as a primarily tech-focused institution, and with over 2,500 VC firms utilizing its services, it operated, in its own words, as the “financial partner of the innovation economy”.
Although Silicon Valley Bank is not a crypto bank, the knock-on effects of its travails were alarmingly clear in the crypto world, as, while events were unfolding, the USDC stablecoin was in the process of depegging from the dollar, plummeting, at one point, to below 90 cents. This was due to USDC issuer Circle holding around 8% of its reserves at Silicon Valley Bank, and though that situation is now on the way to being resolved, it was a significant wobble.
The Case for Bitcoin
These dramatic events now lead to questions around the stability of the crypto environment, and how sentiment may be affected in an industry still suffering the after-effects of a catastrophic 2022. A simple indicator that can suggest how the ecosystem is feeling, is the price of bitcoin, and in that case, one might assume that matters are not so severe. The leading cryptocurrency only briefly dipped below $20,000 during the crisis, and has since recovered alongside news that Silicon Valley Bank depositors will recover their funds.
It’s also worth keeping in mind that even as speculation unfolded about contagion and wider damage–both to banking and to the tech industry–the entire situation was being highlighted by some prominent commentators as a vindication of Bitcoin’s strengths.
Marty Bent, of bitcoin mining company Cathedra Bitcoin and investment platform Ten31, remarked in a tweet that,
“Bitcoin’s value prop…
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