Overview of the reason why banks collapsed

Last week we observe in the crypto market that two major banks collapsed in the US. These three major banks in the US are Silvergate, Silicon Valley, and signature. When investors withdrew $8.1 billion in the aftermath of the FTX incident, one of the major players in the crypto lending space Silvergate bank experienced a significant setback in November last year. A series of negative consequences has been triggered, including the sale of debt at a loss of $718 million. In its most recent financial report, the bank reported staggering losses of $1 billion for Q4 and $949 million for the entire year of 2022. This is shown by comparing the $76 million profit in 2021. 

The collapse of Silicon Valley Bank, Silvergate Bank, and Signature Bank

The success of Silicon Valley Bank was closely tied to the growth of technology startups in the United States. With the outbreak of Covid-19, many of these companies saw an increase in demand for their services, resulting in a surge of deposits into the bank. Generally considering the low-risk investment SVB invested a significant investment in the US government to manage the funds. Following the collapse of SVB bank, Signature Bank, a US crypto lender had its assets seized by its regulator two days later in anticipation of possible collapse.

These three banks’ failures will not affect the depositors. These three banks have promised to return the money to depositors. As they need to sell their assets and pay back their depositors, they need some time for the process to take effect. Silvergate and Signature were primary banking institutions serving crypto companies. While silicon Valley Bank had many crypto startups and venture capitalists as its clients. Since these were the most crypto-friendly banks, it would be a little difficult for startups and companies to get lending services. 

Effect of collapse on the Crypto Market

Crypto liquidity is likely to take a hit in the short term but this is an opportunity for new innovation challenger banks to step up and take the place of SVB, Silvergate, and Signature. While the short-term effects of these events may create market volatility, in the long term they could encourage greater caution among other banks and provide regulators with an opportunity to offer more clarity regarding the crypto sector in terms of regulations to avoid such events.