While the fall of Silvergate Bank (Silvergate Capital) has for a few weeks been the big talk of the town since it is a traditional finance bank yesterday we had Silicon Valley Bank storm onto the stage and take all the attention. Silicon Valley Bank, or SVB for short, differs from Silvergate in that it was not exposed to the turbulence of the crypto market. Instead, its kryptonite turned out to be just tried and true traditional finance issues. 

Silicon Valley Bank was for ease of story the bank that Silicon Valley used and thus was the reason it was the 15th largest bank in the United States. It was a favorite of venture funds and start-ups in the valley to have accounts there and reined supreme in this space. This was all fine and well when interest rates were low as they had been for over 15 years and to get the highest return on investment the majority of their loans were under 6 years in length. With interest rates moving up as quickly as they could the bank realized it had an issue on its hand and had to adjust how it projected interest rates to be throughout those bond lengths.

The result was the huge fire sale that made headlines and resulted in over $1 billion lost. SVB did have a plan though and that was to issue a couple million in shares to raise billions more to put themselves on a healthy track. Here was the second snag though and that was they were going to try and raise roughly 1/3 of the value of the whole company at once. What this offering meant was existing shareholders were going to be heavily diluted and this was just going to crush the stock price as we saw. It is now apparent that that did not go over well and whatever type of deal or strategy they had hashed out completely fell apart resulting in regulators shutting down the bank and the FDIC stating that come Monday they would resume payment for those with accounts since they are FDIC insured up to $250,000.

It has been interesting watching people on CNBC, Bloomberg, and others try to explain this situation and the fallout. For the most part, they lay blame on rising interest rates and the type of customer that SVB catered to. However, this is a huge bank at the end of the day and a key part of the regional banking system in the U.S. its falling is only going to mean that other regional banks are going to face increased pressure. Regional banks facing a lower threshold for crunches mean they are more susceptible to financial collapse as we have now clearly seen.

This leads me to wonder if this collapse could bring about people looking into the banks again and possibly crypto getting a new breath of life. Yes, exchanges and centralized platforms have collapsed in crypto but now that is happening in the traditional finance sector making it a widespread issue. We have seen events like this lead to creative innovation in the past with Bitcoin so could we possibly see either further adoption of decentralized cryptos and assets? Maybe but at the same time could we also see a new project or idea emerge that becomes something similar in scope and size to Bitcoin? That is what I am extremely interested in seeing in the future... what sort of innovation has this crypto and traditional finance turbulence created?! 

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