After a tumbling 2022, with the bitcoin which lost 65%, there are many analysts who filed too hastily the FTX case: a cryptocurrency exchange that has actually been the tip of the iceberg, surpassing 1 million creditors, of a growing number of companies written off by sudden failures all involved in the cryptocurrency world. The domino effect triggered by FTX did not take long to manifest itself involving even two banks: the Silvergate Bank and a commercial bank, among the 20 most important in the USA, the Silicon Valley Bank (SVB).
The reminders of the US President were useless Joe Biden to speed up a definitive regulatory plan and Treasury Secretary Yellen who defends the US banking system to the hilt, regardless of the links and the branching and diffusion of lending activities in cryptocurrencies that have expanded beyond the last two years.
The US banking system under pressure
Retracing the trail of losses, on the one hand there are companies that have closed due to the losses of bitcoin, mining and hedge funds, and on the other a succession of further bankruptcies in the cryptocurrency lending sector, especially among start-ups and venture capitalists.
If the digital revolution has facilitated the speed of transactions and international payment flows, likewise the collapses we have witnessed are distinguished from previous cases by the reaction speed of the customers involved, in transferring their money at the first sign, and so Thursday last year the $42 billion outflow from SVBank cut out deposits that are not covered by the FDIC's insurance guarantee fund (up to $250).
SVBank was shut down by the local regulator, the California State Department of Protection and Innovation, while the FDIC, Federal Deposit Insurance Corporation is the bankruptcy trustee who has already taken steps to reabsorb the employees of SVBank for the next two months and to create a "new bank": the National Bank of Santa Clara which from Monday 13 March will meet the repayment of insured deposits. While the British branch of the Bank is hanging on a bailout monitored by the Central Bank of England.
The collapse of SVB infects the crypto world
The situation we are observing is the first dramatic example of how the banking system traditional, despite being well supervised and regulated, if it intersects with the world of cryptocurrencies it is not free from ailments. On the contrary, he sees an incendiary mixture being created. A few customers like Circle to propagate the crisis situation to cryptocurrency managers. Circle has published the data concerning its link with SVBank equal to about 10% of its reserves. This was followed by the depeg of its cryptocurrency: USD Coin (USDC) from the US dollar. USDC it is regulated in the US and has always had very strong collateral made up of dollars and US government bonds. So surely USDC has always been considered the bulwark of stablecoins, in fact most of them instead of being guaranteed a priori require specific guarantees to be borrowed.
SVB collapse: it's not just the interest rate hikes to blame
All the fault of the rises of the interest rates!! Evidently not, or rather not only, the failure to adjust the valuations of the guarantees in long-term government bonds in which the bank recklessly invested - as well as for the part related to crypto loans and which have certainly rapidly lost value on the banks' balance sheets - they are a non-negligible element, and evidently the accounting instability was evident, if not to the auditors, at least to the CEO of SVBank who liquidated his shares a fortnight ago!
Cryptocurrencies: clear and common rules are needed
If there is no immediate global contagion on the banking system, it will only be because of the Lehman crisis the deadly vehicle of the securitized subprime loans and Lehman's role as an international settlement bank, a significant distinction.
- distinctive elements of this new scandal can be summarized as follows:
- A 300% deposit boom in the last 3 years, mostly from start-ups and venture capitalists
- Some 50% of this cash was ill-advisedly invested in US long-term government bonds and MBS, amounting to $117 billion out of $211 billion in assets (according to Barrons).
- By entering these securities in the balance sheet without an updated revaluation but at historical cost, the losses have been hidden
Then the snares and snares with a clientele linked to cryptocurrencies amplified and accelerated the spiral effect of capital flight and therefore the liquidity crisis that had arisen.
Surely a crypto virtual currency market with few rules and non-aligned regulations between the EU and the US highlight a clear delay and the difficulty in creating an efficient global supervisory infrastructure, leaving too many question marks in the face of this latest case of accounting scam, and a single certainty for Italy: to date, the 30 savers involved in the recent blockade of The Rock Trading operations have no concrete foothold to recover their assets.
