The 60% correction of Silicon Valley Bank (SVB) erodes $80 billion from its valuations overnight.
Market analysts believe that the SVB crisis could set the winds of the upcoming recession leading to a major rout across crypto and other asset classes.

While the world was trying to come to terms with the liquidation of Silvergate Bank, another bank is on the verge of facing existential challenges recently. On Thursday, March 9, the share price of leading tech start-ups lender Silicon Valley Bank (SVB) plummeted by 60% amid heavy withdrawals.

The massive withdrawal of customer deposits happened as the bank announced a $1.75bn (£1.5bn) share sale to boost its finances. In its investors’ prospectus, the SVB Financial Group said that the decision of share sale comes to plug the $1.8 billion massive hole caused due to the sale of a $21 billion loss-making bond portfolio consisting mostly of U.S. Treasuries.

This portfolio has been yielding returns at 1.79% far below the existing 10-year Treasury yield of 3.9%. Shares of the Silicon Valley Bank (SVB) plummeted by a staggering 60% in a day on Thursday, and another 20% in the aftermarket hours. This led to an overnight erosion of $80 billion in the bank’s valuation.

Start-ups who have deposited money with Silicon Valley Bank (SVB) have pressed the panic button and are withdrawing their deposits in huge amounts. SVB’s CEO Gregory Becker, however, has been calling their clients to assure them that the money is safe with the bank. Hannah Chelkowski, founder of Blank Ventures, a fund investing in FinTech, called the situation “wild”. Speaking to BBC, she added:

It’s crazy how it’s just unravelled like this… The interesting thing is that it’s the most start-up friendly bank and supported start-ups so much through Covid. Now VCs are telling their portfolio companies to pull their funds. It’s brutal.

Is the Crypto Market In Danger?

The recent event at Silvergate Bank has forced regulators to initiate tough measures. US lawmakers and regulators have been demanding further strict measures on the business dealings of traditional banks with crypto firms. They have also asked banks to reassess their exposure to crypto firms and related companies.

However, these recent developments at Silicon Valley Bank (SVB) are a clear signal of the upcoming drying of capital in the market. Some market analysts are also stating that these could be the early signs of the beginning of a recession. Yesterday’s correction led to a massive liquidity erosion across asset classes.

Liquidity is disappearing all around the board:

1. S&P 500 lost $600 billion in 2 hours

2. Crypto markets down $40 billion today

3. Four biggest US banks down $50 billion today

4. Bond markets trading like meme stocks

All the buyers are gone as inflation is here to stay.

— The Kobeissi Letter (@KobeissiLetter) March 9, 2023

Now, if the contagion spreads to other banks and the situation exacerbates further, the crisis at SVB could set the winds of the upcoming recession. In such a case, risk-ON assets like cryptocurrencies could plummet further going ahead. Some market experts believe that the situation at Silicon Valley Bank is really grim and this could be another Lehman moment for the start-up world.

Most people don’t realize how crucial Silicon Valley Bank is.

Billions of dollars in venture debt. Untold amounts of warrants and convertible notes in early-stage firms.

If SVB fails, this could be the Lehman moment for the startup world. pic.twitter.com/otgIQtGOMx

— Peruvian Bull (@peruvian_bull) March 10, 2023

 

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Filed under: Bitcoin - @ March 10, 2023 9:14 am