Impact of SVB collapse on crypto biz

CHENNAI: And all fall down! Close on the heels of the FTX debacle comes the SVB Contagion! If you haven’t heard of Silicon Valley Bank before, it was the 16th largest bank in the US with over $212 billion in assets that largely served the tech industry. Tech companies and venture capital both banked with the company, which was more willing than other traditional banks to lend money to VC-backed start-ups that may have been lacking in cash flow. A leveraged bet on US treasury bonds apparently backfired, costing the company $1.8 billion in losses on its $21 billion portfolio as interest rates were repeatedly raised by the US Federal Reserve this past year, sharply reducing bond prices.

Prominent blockchain venture capitalists had over $6 billion in assets held by the bank. These included, Pantera Capital, Andreessen Horowitz (a16z) and Paradigm. A16z has previously invested in Coinbase, a cryptocurrency exchange, and is currently involved in projects like Alchemy, Sky Mavis, and Yuga Labs. Investments from Paradigm have gone to start-ups like Compound, Cosmos, and Uniswap. Pantera Capital, meanwhile, has investments in startups like 1inch, Ankr, and Zcash.

Even though the shutdown sent shockwaves in the IT sector, in contrast, crypto executives and investors, who have lived through a year of near-constant change, have seized the opportunity to lecture and scold. Those who support cryptocurrencies have pointed the finger at centralised banking. A financial system untethered from central banks and other gatekeepers was the basis of their alternative vision. They claimed the bank’s demise could be traced back to the government regulators who had recently cracked down on crypto firms. Big time Bitcoin supporter Erik Voorhees said, “Fiat is fragile,” using a common shorthand for conventional currencies.

When it comes to cryptocurrencies, it’s likely that the recent failures within the crypto industry contributed to the environment that led to this bank run. Unnoticed by many, soon after the demise of Silicon Valley Bank, another bank that primarily catered to the technology industry went under as well. Silvergate Bank declared bankruptcy and liquidation of its assets on March 8. Silvergate was widely recognised as one of the most crypto-friendly financial institutions, and it served a sizeable clientele in the cryptocurrency sector.

Crypto companies that had exposure with SVB include Circle, Include BlockFi and Avalanche amongst others but several crypto companies have also rushed to declare their lack of exposure to SVB in attempts to stave any potential additional panic accelerated by an already volatile crypto market.

However, the exposure of Circle has had a cascading impact on stablecoins which unlike other cryptocurrencies, are intended to maintain a fixed value of $1. Uncertainty surrounding Circle led to a precipitous drop in the value of Circle’s USDC stablecoin during trading sending prices below $1 have sparked fears of another crypto market crash. Many exchanges have stymied the liquidity.

I am seeing glitches in the machine, friends, so let’s take a deep breath and think about the merits of decentralisation. It may not be an immediate silver bullet, but it has shown the world that there is an option!

(The writer is founder, India Blockchain Alliance)