How is the global banking crisis affecting crypto?

It's been a wild week in crypto and beyond. In just a few days, we saw the collapse of three US Silvergate, Silicon Valley bank and Signature. These were some of the largest bank failures in the U.S. history since the 2008 financial crisis. Each of these banks had close ties with the crypto industry. Nevertheless, while bank stocks were tumbling, Bitcoin rallied. So what's going on? Is this 2008 all over again? In this video, we'll explain exactly what happened and what to expect next. Before we get started, don't forget to like the video and subscribe to our channel. I'm Giovanni, your host and this is a Cointelegraph report. First, let's talk about Silicon Valley Bank. So before collapsing, SVB was the 16th largest bank in the United States with about $209 billion in assets under management. It was a major lender for US tech startups and crypto companies. SVB's deposit inflow skyrocketed during the COVID 19 pandemic when the tech sector was booming. On Wednesday, March 8, SVB revealed it was facing liquidity issues and had to sell a bond portfolio at a $1.8 billion loss. The announcement sparked panic among depositors who tried to withdraw $42 billion worth of deposits on on Thursday, March 10. Does this situation sound familiar? Yes. That is exactly the sort of bank run that brought down crypto friendly bank Silvergate just a few days earlier. If you missed it, check our dedicated video here. On Friday, SVB was on the brink of insolvency resulting in its shutdown by US Regulators. This led to severe consequences for crypto. Stablecoin issuer Circle revealed it had $3.3 billion of reserves at SVB. As a result, USDC lost its one to one peg to the US dollar during the weekend. Fortunately, on Sunday evening, US regulators stepped in and guaranteed that SVB depositors would be made whole. Following that news, USDC regained its peg to the US dollar. So why did the SVB collapse? Put it simply, it was a mix of poor risk management and unfavorable market conditions. SVB was not investing its customers money in crypto or other risky assets. Instead, it invested in long duration U.S. treasury bonds, which are supposed to be pretty safe. The problem is that the US Federal Reserve has carried out the most aggressive interest rate hike in decades to battle inflation. And as we know, when interest rates increase, the value of treasury bonds goes in the opposite direction. That meant SVB's portfolio was registering unrealized losses. That would still be fine if it weren't for a sudden bank run that forced the bank to sell the bonds and and realize a big loss. Which is exactly what happened to svb. Apparently many other banks in the US are experiencing similar issues. According to the Federal Deposit Insurance Corporation, at The end of 2022 US banks were sitting on $620 billion in unrealized losses. To put that in perspective, that's over a half of the entire crypto market cap. Given the high risk of contagion, the Fed has set up a $25 billion fund to help banks in case of liquidity issues. That hopefully should calm down depositors and prevent further bank runs. So how is crypto affected by all this? Last Sunday, US Banking regulators announced they were shutting down the crypto friendly Signature Bank. The reason was protecting the economy from systemic risk stemming from the SVB collapse. The fact that regulators picked this specific bank while many others were in similar stress situations is suspicious to say the least. Signature bank was the only remaining crypto friendly bank in the US after Silvergate's collapse. According to Bloomberg sources, Signature was experiencing a large number of withdrawals requests on Friday, but the situation had stabilized by Sunday. That makes its sudden shutdown even more suspicious. Many in the industry believe it was a political decision, an attempt to use crypto as a scapegoat to blame for the ongoing banking crisis. That would not be surprising considering the regulators growing pressure on banks serving the crypto industry in the United States. In any case, the two main crypto friendly banks in the US are now down. That means crypto companies may have difficulty finding alternative solutions to connect them with the traditional financial system. Still, there might be a silver lining in this whole situation. Despite the bank crisis, bitcoin has been rallying for most of the week while bank stocks were down. That could be the sign people are waking up to the reality that the traditional banking system has severe flaws and taking self custody of their money is a valid alternative. Another explanation is that markets anticipate an imminent change in the Fed's monetary policies. It is clear that rapidly growing interest rates have played a significant role in this banking crisis. The Fed probably understood that and is unlikely to raise interest rates further. That may signal that the next crypto bull market could be near. As for the banking sector, it looks like this crisis is far from over and it is becoming global. Earlier this week, Credit Suisse, the second largest bank of Switzerland, announced it will borrow up to $53 billion from the country's central bank to face a liquidity crisis. We'll be monitoring closely these events, so stay tuned. That's it for this week's video. If you enjoy the content, please don't forget to like and subscribe. I'm Giovanni. See you next time.