Silicon Valley Bank’s Troubles Spread Across Markets

Silicon Valley Bank’s Troubles Spread Across Markets

Weekly News Wrap Up

Markets under pressure last week as Powell’s testimony to Congress hinted at potentially higher rates from the Fed, and Silvergate’s announcement to wind up and Silicon Valley Bank’s (SVB) share collapse spread contagion across the Financials sector. In Cryptocurrencies, SVB news bled into the stablecoins sector as panic ensued across exposure of cash reserves to SVB with USDc, DAI and FRAX depegging below $0.96. Separately, ETH also came under pressure as New York Attorney General (NYAG) alleges ETH as a security in its case against KuCoin.

U.S. equities: SPX -4.55%, DJIA -4.44% and NASDAQ -4.71% were weighed down last week from Powell’s hawkish comments during his Congressional testimony and broader contagion in the Financials sector following SVB. US Regional Banking ETF (KRE) -4.39% and large-cap banks (XLF -1.82%) was also not spared on Friday (10 Mar). Cryptocurrency majors: BTC -1.60% and ETH +1.77% experienced large swings in the week, falling -10% after SVB’s news towards $20,000 and $1,350 but recovering strongly above $22,000 and $1,600 as we start the week. 

chart patterns btc 13 march

chart patterns eth 13 march

Cryptocurrency News

  • Crypto-focused bank Silvergate plans to wind down following blow from FTX. The bank announced on 08 Mar that it would wind down its operations and voluntarily liquidate after warning on its ability to continue operations last week. The bank has provided banking services to crypto companies since 2013 with nearly 500 crypto clients in 2018 and over 750 clients during its IPO in 2019. This marks the first major bank collapse since October 2020 and possibly the largest bank to fail since 2009.
    Our View: given its reputation as a “crypto-friendly bank”, this could serve as a cautionary tale to other banks looking to build relationships with crypto companies. For example, JPMorgan is rumored to be cutting ties with crypto exchange Gemini.
  • Silicon Valley Bank (SVB) shares collapse 60% after proposing a $1.75 billion share sale to cover losses from its bond portfolio. This sparked a broader selloff in Financial shares, and also concerns around prominent stablecoin reserves like USDc that utilizes the bank of one of its six banking partners for ~25% portion of USDc reserves held in cash.
    Our View: USDc, DAI and FRAX depegged below $0.96 over the weekend as fear spread across the industry following the SVB news. Circle disclosed that $3.3 billion out of the ~$40 billion USDc is exposed to SVB and will cover any shortfall using corporate resources if necessary. The peg is currently in the process of recovering.
  • New York Attorney General alleges Ether is a security in KuCoin lawsuit. A press release said the lawsuit was part of ongoing “efforts to crack down on unregistered cryptocurrency platforms.”. The suit is the first time a regulator has claimed in court that ether is a security. 
  • Australian crypto regulations likely to be delayed until mid-2024. The government is currently consulting with the industry. Treasury contended that some stakeholders might be disappointed with a “perceived delay in implementing a licensing regime” but viewed the concerns as “somewhat mitigated” by the collapse of several crypto companies last year.
  • Kraken on track to launch bank “very soon” despite regulatory “weird place, its Chief Legal Officer shared with The Block’s The Scoop podcast. It is moving ahead with its plans despite the recent shuttering of its on-chain staking services for U.S. clients after settling with the U.S. Securities and Exchange Commission (SEC).
    Our View: it would be interesting to see how this plays out. If a crypto company can launch its banks, it would be a pivotal moment for the industry from a U.S. regulations perspective given the recent hardening stance we’ve observed.

Investment Consideration

Our best strategy for medium to long term investment is to take at least 1-3 years in Moderate Portfolio because it has a good defense with 50% Fixed Deposit , 30% In DCD and 20% in Staking because we still have potential return in DCD and Staking especially in BTC.

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