The moment of horror in the currency circle: a review of the SVB thunderstorm incident

darkest hour

The past week may have been the darkest period in the currency circle at the beginning of the year. The price of Bitcoin fell below the important mark of $20,000 for the first time since January. Bankruptcies have hit the encryption industry one after another. Social media is full of words such as “financial crisis”, “Lehman moment”, “thunderstorm”, and “crash”. Panic lingers in the hearts of almost everyone in the currency circle.

In terms of the macro environment, the Federal Reserve continued to release hawkish expectations. On March 7, Federal Reserve Chairman Jerome Powell said at a hearing of the Senate Banking Committee that the Fed’s terminal interest rate “may be higher than” previously estimated levels, cooling an unexpectedly strong economy, and if necessary, the Fed ” Will be ready to accelerate the pace of rate hikes.” After Powell’s speech, the three major U.S. stock indexes plummeted, and non-dollar currencies, including crypto assets, suffered a collective setback.

At the regulatory level, the encryption industry is also facing increasingly strict regulations. When Powell answered questions from lawmakers about the encryption market at the meeting, he said that the Federal Reserve has seen a lot of fraud in the field of cryptocurrencies; the vice chairman of the Federal Reserve’s financial supervision also said that banks should be cautious about cryptocurrencies, and banks that directly hold cryptocurrencies will considered unsafe.

However, the unexpected pace of interest rate hikes and strict supervision are just the “prelude”. The real “highlight” is today’s protagonists, “Currency Circle Bank” Silvergate and “Silicon Valley Money Pot” SVB, their successive thunderstorms and the chain of events they caused The reaction brought the most immediate “heavy blow” to the crypto market.

Silvergate and SVB

On March 2, Silvergate Bank announced that it would postpone the publication of its annual financial report, saying that it “may face inquiries from banking regulators and the US Department of Justice, and its ability to continue as a going concern in the coming year may be affected”, a move that triggered Panic, Silvergate’s share price plummeted more than 40% after the opening bell on the same day.

On March 4, Silvergate announced the suspension of its Silvergate Exchange Network (SEN) transaction network.

On March 8, Silvergate sought help from the US Federal Deposit Insurance Corporation (FDIC) to negotiate a way to save the bank, but the negotiations ended in failure.

On March 9, Silvergate declared liquidation and returned all deposits to customers.

Silvergate started out as a community bank in California with a small scale. In 2013, it began to turn its business to the cryptocurrency field. By providing USD and EUR settlement services to exchanges and other cryptocurrency institutions, it quickly grew into the most famous bank in the encryption field. one.

In 2018, Silvergate launched the Silvergate Exchange Network (SEN), a transaction network that provides convenient currency exchange services for cryptocurrency businesses.

The SEN network breaks the time limit of traditional banking services, making it possible for 24-hour uninterrupted transactions of fiat currencies and cryptocurrencies. Customers can exchange fiat currencies and cryptocurrencies at any time, ensuring strong market liquidity, and Silvergate has also become an American cryptocurrency in one fell swoop. The company’s preferred banks, including cryptocurrency trading platforms such as Coinbase, Kraken and Gemini, as well as stablecoin issuers such as Circle, Paxos and TUSD, are loyal customers of Silvergate.

The reason for the Silvergate debacle was a misjudgment of how far the Fed would raise interest rates. The company had previously bought a large amount of long-term municipal bonds and mortgage-backed securities (MBS), and due to the rapid rise in interest rates in 2022, the value of Silvergate’s portfolio has shrunk significantly (note: bond prices fall as interest rates rise).

In November 2022, Silvergate’s major customer FTX declared bankruptcy, and panicked depositors began to withdraw money. In order to deal with this situation, Silvergate was forced to sell the assets it had purchased at high prices.

The continuous loss of deposits and securities losses made Silvergate’s liquidity problem has not been resolved, and Silvergate, which could not hold on, finally declared bankruptcy on March 9.

The situation of SVB is similar to that of Silvergate, except that SVB has a larger scale and deeper influence.

On March 9, SVB announced that its core position of nearly 91 billion US dollars of bonds would be affected by the rise in benchmark interest rates (prices fell); then it announced that it would urgently sell its bond portfolio worth 21 billion US dollars, and this It will take a $1.8 billion loss and seek $2.25 billion in equity financing.

SVB’s move is considered to be a panic asset sale to boost liquidity. We are familiar with the story behind it. SVB’s stock price plummeted, panic began, and everyone rushed to redeem their assets. In just 48 hours, SVB declared bankruptcy directly and was taken over by the US Federal Deposit Insurance Corporation (FDIC).

Silicon Valley Bank, or SVB for short, is the largest regional bank in the Western Bay Area of ​​the United States, focusing on providing services to technology start-ups in Silicon Valley.

According to the FDIC’s statistics as of the end of 22, the total assets of SBV are 209 billion US dollars, of which the customer’s savings scale is 175.4 billion US dollars, and more than 90% of Silicon Valley start-ups have business dealings with SVB. In addition, the deposits of Web3 venture capital companies in SVB The total is more than $6 billion, which is why the impact of SVB’s bankruptcy is far greater than that of Silvergate.

In the two years since the Federal Reserve released its water in 2020-2021, U.S. stocks have also ushered in unprecedented technology bulls. A lot of money has flowed into these start-up companies in Silicon Valley. The scale ushered in a big surge, more than 4 times.

With money, SVB did almost the same thing as Silvergate, that is, allocated a large amount of national debt and MBS-related assets, so SVB also faced the same predicament as Silvergate.

In the face of the Fed’s rapid interest rate hikes, book losses on bond holdings continue to increase, and after the liquidity crunch, some start-up companies can’t survive, a large number of technology companies have laid off employees to reduce costs, and have to consume a lot of their own funds. Savings to make ends meet. However, SVB’s deposits were withdrawn bit by bit. When the deposits were insufficient to pay, SVB could only sell the bond assets it had purchased. After the assets were sold, these book losses became realized bit by bit. loss. When the realized losses become too large for SVB to sustain, bankruptcy will come.

USDC Crisis

The successive thunderstorms of Silvergate and SVB have pushed the stablecoin USDC to the forefront, because Circle, the issuer of USDC, has business dealings with these two banks.

On March 11, Circle announced that $3.3 billion of its $40 billion USDC reserves are in SVB. In addition, Circle also confirmed that it has an undisclosed deposit in Silvergate. After the news was released, the price of USDC began to lose its anchor.

In fact, the $3.3 billion that Circle has in SVB is not much for its 40 billion reserves. Moreover, Circle still has a portfolio of short-term treasury bonds of $32.4 billion, and there are $7.8 billion in cash and equivalents in other banks. But when market panic was ignited, nothing could stop users from frantically redeeming USDC, and a large amount of funds were withdrawn from Circle.

Major exchanges such as Coinbase and Binance also announced the suspension of conversion between USDC and U.S. dollars, which made USDC even worse, and the unanchoring situation continued to intensify. It once fell to a low of 0.87 US dollars, and its market value also fell by about 6 billion US dollars.

Moreover, the continuous unanchoring of USDC has also brought down the entire encryption market. In addition to USDC, stablecoins such as DAI, BUSD, and FRAX have also experienced varying degrees of unanchoring. When keywords such as stablecoin, unanchor, and thunder are linked together, it is difficult not to remind people of the UST incident last year. People’s concerns about the collapse of the stablecoin intensified, a large number of assets were sold in a panic, and the market was devastated for a while.

Fed bailout

But things soon turned around.

In the early morning of March 13, U.S. Treasury Secretary Yellen, Federal Reserve Chairman Powell and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg issued a joint statement, stating that the FDIC and the Federal Reserve approved the FDIC’s resolution on SVB and would take actions to support deposits and Stop the broader financial fallout from SVB’s bankruptcy.

The statement also said that losses related to SVB’s resolution will not be borne by taxpayers, although shareholders and certain unsecured debtors will not be protected, and senior managers related to the bank have also been removed from their posts. The administration is taking action to protect the U.S. economy by increasing public confidence in the U.S. banking system.

As soon as the news was released, the panic in the market was finally released, the encryption market ushered in a strong rebound, and the total market value returned to above one trillion US dollars. The price of Bitcoin and Ethereum both increased by more than 10%, and the price of USDC also returned to 0.99. seems to be lifted.

And after the Fed rescued the market this time, the market has begun to expect the Fed not to raise interest rates in March.

According to the data of CME FedWatch Tool, the prediction that the Federal Reserve FOMC will raise interest rates by 50 bps after 9 days has dropped from 40% one day ago to 17.4%; 82.6% of the probability is to raise interest rates by 25 bps, and Goldman Sachs even directly predicted the rate hike in March The probability of 50 bps is 0, which was 70% a week ago.

This is undoubtedly the most important benefit for global growth assets.


Bill Ackman, a well-known hedge fund manager, issued a document over the weekend that the US Federal Deposit Insurance (FDIC) must take action before the Asian stock market opens to provide guarantees for all bank deposits to prevent the spread of the SVB crisis.

Now with the Fed’s hand, the crisis has finally been pressed the pause button.

However, the problems of the U.S. banking industry are still unresolved. In the same statement that the Federal Reserve announced to rescue the market, another bank in the currency circle, Signature Bank, was also announced to shut down. On the evening of March 13, the U.S. stock market First Republic Bank fell 67%. Worries about the banking sector continued amid the biggest drop on record.

In addition, with the closure of crypto-friendly banks such as Silvergate and Signature, crypto companies have lost their main key access to fiat currency, which will undoubtedly cause further damage to the current tight liquidity in the crypto market.

Therefore, the Fed’s action will not be the end of this crisis, and the bullets have to fly for a while.

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