The instant collapse of Silicon Valley Bank and Silvergate Bank. What is behind this, and what can it lead to?
Two days to bury the two largest US banks, $52 billion loss of capitalization for systemically important financial institutions, a downward movement in the stock market — the numerology of last week’s news. What is happening, the reasons for this, and what it will entail, are analyzed by Anti Danilevsky, CEO and founder of Kick Ecosystem.
Many talks about the volatility of Bitcoin (BTC) and the instability of the crypto market, that this is an extremely high-risk market, and some who have not bothered to study the subject continue to claim that this is all a pyramid scheme. But let’s take a look at the American banking system — the standard of reliability and financial “correctness”. We will not return to previous events, the stars of which were the “blue chips” of top, ultra-reliable technology, and IT companies, such as Netflix, Amazon, and others like them, which fell by 60–80%, or went bankrupt, like the same WeWork. Let’s watch a new episode of the series about “safe assets”, in the main roles of which are the largest American banks.
A little flashback to understand the facts
So, right before our eyes in Silicon Valley, the bank of the same name, Silicon Valley Bank, is failing. All week there was an increasing run of depositors when the bank’s shares collapsed by 65%, and now the bank came under the control of the FDIC (Federal Deposit Insurance Corporation). It’s important to talk about this because SVB is the largest bank in Silicon Valley, serving both start-ups and VC funds. Why did it happen? In very short terms, too big to fall, in professional slang, or too much money. As it turns out, this also happens.
What led to this? The covid boom brought record deposits to the bank, liabilities tripled — from $60 to $180 billion. Nobody particularly wanted to take loans, which is logical, but the bank needs to earn somehow. What does the bank do about it? Invests $80 billion in mortgage-backed securities (MBS), i.e. mortgage-backed securities. Almost 97% — with expiration in 10 years.
Further — the US Federal Reserve System (FED) raises the key rate, and the yield of government bonds increases dramatically: now they are 2.5 times higher than mortgage-backed securities. The latter, in turn, immediately become cheaper.
Meanwhile, in tech-sector are taking place its perturbations and revolutions. The market is shaking, stocks are getting cheaper as a result of a key rate increase, and many companies, again, which is logical, decide to withdraw funds from their SVB accounts to cover cash gaps. And to return resources, SVB is now forced to sell MBS — for 75% of its value. Then the snowball begins: Silicon Valley Bank suffers a huge loss, trying to raise funding. But no one is in a hurry to save the bank, and depositors keep running and running.
Moreover, “friendly” SVB structures are falling, too (which, in principle, is expected). Not so long ago, the bank took over Boston Private Bank. Attention, what is happening to him today.
As we have seen recently, now anyone and anything has the potential for bankruptcy. Despite the billions and trillions of infused or raised funds and “too big to fall”.
Another recent case is the closure of Silvergate Bank (SI), which also led to several negative movements, including an outflow of customers. Furthermore, in a press release, the bank’s holding company, Silvergate Capital Corporation, said: “In light of recent industry and regulatory developments, Silvergate believes that the bank’s planned winding down and voluntary liquidation of the bank is the best course of action.” The main reason for the closure, in this case, is the withdrawal of funds by major clients such as FTX and Genesis, also recently bankrupt. In January, Silvergate’s earnings report showed that the bank lost $1 billion after its clients withdrew $8.1 billion. On March 1st, Silvergate filed a surprise filing with regulators saying that in fact the quarterly results were even worse than the report and it’s unclear if the bank can stay in business.
Two influential figures helped Silvergate drown: Senator Elizabeth Warren, who, receiving a salary as a civil servant of $235 thousand a year, by some “inexplicable” miracle, has a fortune of $ 67million today with an annual income of $400 thousand, and Peter Thiel, a billionaire and venture capitalist. Both called in their letters to the community or investors to take money from Silvergate, which led to a bank run and subsequent collapse. Who made money on this? The one who shorted his stock beforehand and who knew what their “non-financial advice” would lead to. This is not some kind of speculation — their letters are in the public domain and are easily found by anyone who wants to search. Corruption, insider trading, attacks on companies for their own benefit at their finest in the “safe” US market. Draw an analogy with the attack on the Terra cryptocurrency company yourself.
Domino effect: how it affected the US economy
On the same gloomy Thursday (perhaps later called “black”), the four largest US banks lost $ 52 billion in market value:
JPMorgan — about -$22 billion;
Bank of America — $16 billion;
The market capitalization of Wells Fargo decreased by $10 billion;
Citigroup shares fell $4 billion.
In general, the total capitalization of these banks alone fell by 60% in just a couple of days. I emphasize the importance of this event because these are the systemic banks of the USA.
Traders could easily extrapolate the situation in Silicon Valley Bank and Silvergate Bank to another field. The US stock market is also on the brink of panic, if not beyond it. As stocks collapsed, Treasury yields dropped the most since September 2008, the moment of the historic collapse of Lehman Brothers. The Dow Jones Industrial Average lost another 1.07% on the day, the S&P 500 lost 1.45% and the Nasdaq Composite lost 1.76%, which is surprisingly small. Again, at the heart of the problems was a massive drop in Treasury bonds associated with the Fed’s rate hike. It led to losses in forced sales of these securities to maintain liquidity.
Once again, the Fed, by continuing to raise the key rate and promising to raise it further and harder, actually destroyed two banks in just one day. Moreover, the US government did nothing to save him. Here is such a reliable fiat economy, in which they call for keeping money and are called “safe”.
Pay attention to the following: what is happening with banks will spread further to startups and established businesses that have placed deposits in failed banks, and have loans. Or in banks that have yet to collapse — perhaps as early as next week we will see this. And this will affect not only the “stable” US economy but also the world economy as a whole. So my financial advice here is: Stock up on popcorn.
Roots of the problem
The most common question I get asked is “Anti, what are your thoughts on the current situation in crypto in the world? Are they strangling all fiat-to-crypto flows before the launch of the state cryptocurrency?”
In my opinion — they are not on purpose. It is the American economy itself that is collapsing, as a result of inflation provoked by the US government and regulators. Remember the $2 trillion printed during the pandemic? It’s 50%.
The second 50% is the result of sanctions against Russia and rising energy prices. And if you rewind further and go into the political component, then my personal opinion is the result of their attack on Russia with the hands of Ukraine and the direct result of the proxy war that they staged. Proxy wars in small countries, the United States underestimated the strength of Russia, expecting that their main enemy would fall after the imposition of sanctions, the economy would collapse and it would be possible to continue to do anything in the world. It did not work out, and the whole world begins to see the results of their activities. You can talk a lot about the crisis in Europe, about the transfer of production from Germany, and so on, and this is also part of what is happening now with the US economy, but this is a subject for a completely different article.
What’s next? Dreamer’s Minute
I understand that this most likely will not happen since propaganda has pitted our people for many years, but suddenly:
1. Russia and Ukraine are ending this unnecessary war, neither for us nor for Ukraine;
2. Russia and Ukraine unite together against the US and the EU, and repay all the “good” they have brought;
The unpopular opinion is that for this to happen, the leadership set by the United States must change in Ukraine. I admit that over time, the Ukrainian people and the army themselves can do this. However, with the amount of propaganda and the billions of dollars the US spends on it, this is unlikely to happen. And this is exactly what the flaring crisis in the US and Europe can put an end to, along with “military assistance”, which was aimed at turning Ukraine into a second Afghanistan, from where the US was kicked out in disgrace. Probably, in the current situation, it is enough for Russia to simply continue to act in the same form — with restraint and accuracy, and just wait until the corpses in the form of the US and the EU float down the river. Moreover, I am unequivocally for world peace and I understand all the bitterness of the fact that people are dying on both sides.
Let’s get back to the economy, yet I am not a military or geopolitical expert — perhaps this is just a utopia, but in reality, everything will unfold quite differently. I can speak competently and confidently about the field in which I have been working for almost ten years — the crypto-economy.
So, now we see that the classic, regulated, reliable industry, so praised by all cryptocurrency skeptics, is no better than the crypto-sphere, if not worse: it is called safe, and people are assured of its reliability, but it is regularly subjected to crises, inflated by nothing. unbacked by dollars and is a much bigger bubble and pyramid scheme than any third-rate token. And if the BTC cannot go bankrupt, there will be no bank run with BTC, then the banks are very even, which they are demonstrating right now. Once again, if you remember 2008 and the collapse of Lehman Brothers, the mortgage bubble, and so on.
Today we see that BTC is much more reliable, no matter what numerous “analysts” and experts tell us. Yes, it is volatile, but, moreover, it will not go anywhere, and the bank exists today, but not tomorrow. The same applies to deposits, gold, and shares: US and EU regulators have shown on the subject of Russia’s gold reserves that they can be confiscated at any moment. Or sell to cover debt or cover bankruptcy. Accounts can be arrested because someone has a Russian passport, shares, and gold can be frozen, and real estate can be taken away. We have been specifically proven that no “fiat” asset is as reliable and safe as BTC, which, even in the event of a nuclear war and the destruction of a continent, will survive it thanks to decentralization. In my opinion, the correct long-term investment strategy in BTC, without buying high and selling low, makes it the most reliable long-term asset that exists in the world.
We will have to spend the night again on a political note, since the economy is inseparable from politics and, unfortunately, is now subordinate to it. Yesterday is the day America officially lost its proxy war with Russia. The rapid bankruptcies of recent days, bank wounds, uncontrollable inflation, forcing to raise the base rate and plunging the US into recession and further plunging into crisis — this is just the beginning of a destructive chain of events that will affect absolutely all areas of American life, the economy, and the fiat system. And not only American, but also their vassals in the European Union, who are losing production, whose factories are stopped and transferred to other countries due to the same inflation and rising resource prices (see BASF, Volkswagen, and others).
Cryptocurrency, on the contrary, right at this moment, is becoming the very salvation from the banking crisis, during which it appeared: bitcoin was created during the 2008 crisis as a measure to counter it.
Therefore, I foresee that in Russia, now soon, the attitude of our regulators to cryptocurrency will change. For my part, I will continue to do everything possible I can to make this happen in our country faster and “correctly”.