SVB Crash Caused the Butterfly Effect in the Crypto Market? What Should Investors Do?

2023-03-14, 10:00

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SVB Crash Caused the Butterfly Effect in the Crypto Market? What Should Investors Do?
Silicon Valley Bank (SVB), the second largest bank failure in U.S. history, suddenly announced its collapse on Friday, causing global financial market and economic turmoil, sparking concerns about a potential systemic catastrophe. While experts say such fears are largely overblown, they warn that the fallout from the Fed's continued interest rate hikes to curb rising inflation will continue to affect the economy for a long time. Now the collapse of Silicon Valley Bank has spread to the crypto market, and the second largest stablecoin, <a href="/th/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a>, in the cryptocurrency market has been involved. On March 12, <a href="/th/price/usd-coin-usdc" target="_blank" class="blog_inner_link">USD Coin</a> (USDC) rose sharply to around 0.95, but it has not yet returned to the normal level before this turmoil.

## Overview of SVB collapse
Silicon Valley Bank is the 16th largest bank in the United States, with assets of more than 200 billion US dollars, mainly serving start-ups in the technology industry. It is generally believed that SVB owns a relatively conservative investment, with a low risk of its asset portfolio. A large part of its asset portfolio is low-risk bonds.
From collapse to being taken over, Silicon Valley Bank experienced a nightmarish 48 hours. On March 8, Silicon Valley Bank Financial Group, the parent company of Silicon Valley Bank, announced that it had earlier completed the sale of nearly all of its marketable securities, totaling approximately $21 billion, which will result in an after-tax loss of about $1.8 billion in the first quarter of 2023. Meanwhile, Silicon Valley Bank plans to raise $2.25 billion through various forms of equity financing.
Market investors took this move as a dangerous signal, and Silicon Valley Bank plunged 60.41% that day, the largest drop since 1998. SVB incident also caused panic selling in the capital market, driving bank stocks to fall, and the market value of the four major banks evaporated by $52.4 billion. JPMorgan Chase (133.65, 3.31, 2.54%) fell 5.41%, Bank of America fell 6.2%, Wells Fargo fell 6.18%; Citigroup fell 4.1%. In addition, the Philadelphia Bank Index plummeted 7.7%, which is the worst single-day performance since June 2020. The four largest U.S. banks lost $47 billion in market value in trading on the same day.
According to media reports and industry analysis, there are two main reasons for the collapse of SVB. One was affected by the last- year collapse of its main client, the cryptocurrency exchange FTX. Regulatory investigations into FTX unnerved Silicon Valley Bank customers, triggering a run on a bank. Second, in the face of a run on a bank, SVB was forced to sell $21 billion of high-quality securities, but the value of these securities was greatly depreciated by the impact of the Fed's strong interest rate hikes. Coupled with the fact that these securities have not yet expired, the sell-off directly resulted in a loss of US$1.8 billion. Many commenters on the Internet said that if it were not for the Fed’s continued imposition of interest rate hikes, Silicon Valley Bank would likely have raised enough funds to cope with the run on a bank and avoid bankruptcy by selling bonds at normal prices.
The Wall Street Journal says the FDIC has taken over Silicon Valley Bank and has transferred all of its deposits to a new physical bank created by the FDIC. Starting next Monday, protected depositors will be able to withdraw deposits up to $250,000 at their banks, the FDIC said. Depositors with more than $250,000 in deposits will receive a certificate of receivership and contact the FDIC a week later to discuss resolution.

## SVB Crash Affected the Crypto Market?
The heat of the bankruptcy of Silicon Valley bank continues to simmer, which has spread to the crypto market. USDC, the second largest stablecoin in the cryptocurrency market, was involved and suffered a heavy blow. However, <a href="/th/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin price</a> surged amid the bank panic, topping $24,000, and Ether has risen up 14.87% in the past 24 hours. USDC is involved in risk events, but why does <a href="/th/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> go up abnormally? Many investors said that this is a manifestation of market risk aversion. After the USDC plummeted, it triggered a series of market reactions. Many leading cryptocurrency exchanges restricted their related transactions, and users could not immediately sell. Converting it to <a href="/th/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> at the corresponding price can reduce losses to a certain extent.

For example, Coinbase, the world's largest cryptocurrency trading platform, announced that it would suspend the conversion of the stablecoin USDC over the weekend, and it will resume when the bank opens on Monday, emphasizing that "users' assets are safe." Binance (Binance) also pointed out that due to the current market conditions, the large inflow of USDC assets has increased the burden of automatic conversion. Therefore, Binance has suspended the automatic conversion of USDC to BUSD, and stated that this is a routine risk management measure. In addition, several trading platforms have announced the suspension of transactions and deposits of the US dollar stablecoin USDC.

In fact, stablecoin explosions are no strangers to users. In May 2022, the price of the LUNA coin known as "Moutai in the crypto market" fell from around $100 to below $0.001 within a week, and the total market value went from $40 billion to almost "zero". The accompanying algorithmic stablecoin UST was originally anchored at $1, but eventually fell to $0.03. The impact of the LUNA coin explosion incident has gradually emerged since then. The bankruptcy of Sanjian Capital and the collapse of FTX have continued to shroud the cryptocurrency field in a liquidity panic.

Under the continuous transmission of risks, on March 8, 2023 Eastern Time, Silvergate Capital, the parent company of the Silvergate Bank, issued an announcement on its official website, announcing that it will close the banking business in an orderly manner in accordance with applicable regulatory procedures and voluntarily liquidate the bank. The current epic fluctuations in the valuation of USDC against the US dollar and the withdrawal of deposits by a large number of core crypto investors have caused the industry’s liquidity disaster. This has fully proved that the domino effect caused by the collapse of the Silicon Valley bank has begun to unfold.

## With Mixed Joys and Sorrows, Maybe the Crypto Market Ushered Good Luck?
Although the SVB crash had a great impact on the crypto market, the crypto industry is not all bleak. Data show that in the past 24 hours, the value of <a href="/th/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> has increased by more than 10%, reaching a high of $24,480, which seems to be a good omen. Analysts believe the upward trend could be attributed to regulators' support for deposits at Silicon Valley Bank. Experts expect the Federal Reserve to take a more accommodative stance after the recent near-collapse of the banking sector, which is a positive sign for the cryptocurrency industry and a potentially positive development that could increase financial System fluidity. Because it shows that institutional investors are acknowledging the development potential of digital currencies and are welcoming investment in digital currencies. Or, it also shows that the crypto industry is playing such a pivotal role that regulators can't ignore it and have to take relevant measures to regulate when the market as a whole has a potential collapse.

## Keep Calm and Trade Cautiously
Regardless of whether the SVB collapse will lead to a more serious chain reaction, investors do not need to panic, flee in a hurry or follow the trend blindly. After all, the crypto market has experienced countless storms since its birth, but it still stands firm. Regarding the SVB crash, most industry experts believe that it is different from the financial crisis in 2008 and is unlikely to cause a full-scale financial turmoil. Since 2008, the supervision of the US banking industry has been very strict, and bank firewalls have been established. In addition, after the incident, the U.S. regulatory authorities quickly took over Silicon Valley Bank and quickly launched emergency measures to control the spillover effect. At the same time, the sounds of the Fed’s slowdown in interest rate hikes are getting louder and louder, which is undoubtedly a long-lost gospel for the crypto market. But in any case, at special moments, small sprays may set off rolling <a href="/th/price/waves-waves" target="_blank" class="blog_inner_link">Waves</a>, so investors must be cautious. It is recommended that you pay more attention to the fluctuations in the Fed's policies, use leverage with caution, minimize losses as much as possible, and protect your principal.
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<div>Author:**Gate.io Copy Trading**
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
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