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Observations from the Collapse of SVB (and what it could mean for Circle and $USDC)

Hey folks, unless you’ve been living under a rock somewhere, I’m sure like like I was, you were alarmed to see the price of $USDC look like this:


Since waking up to the media storm of of Silicon Valley Bank’s (SVB) collapse last week and Circle’s $3 billion dollar hole they have because of it, I’ve been on a non-stop path consuming a ton of information trying to speculate upon not only the future of $USDC, but the future of crypto— both short term and long term. As I’ll break down in this article, I see one of three things possibly happening:

  1. Federal Government steps in and announces that they’ll make all SVB depositors (even ones over the FDIC $250k limit) whole
  2. An emergency acquisition will be announced, where someone will help make SVB solvent
  3. No one does anything, causing a massive contagious series of bank runs, sending us into a recession…and a lot worse.

On that super positive note, let’s dive in shall we?

The U.S. Treasury says they won’t bail out SVB

Earlier today, there was an announcement by Treasury Secretary Janet Yellen that there wasn’t going to be a bailout for SVB. Now on the surface level, this might be a bit alarming to some folks, but the more I read about what’s at stake here, the less I get worried. Call me naïve, but I simply think that there’s too much at risk and the bottom line is that given all the hits and layoffs the tech sector has experienced over the past several months, I wholeheartedly believe that Secretary Yellen and the Fed can’t afford to let the tech sector to continue to implode — especially because in this case, it really wasn’t the tech sector’s fault.

Now for the skittish folks out there, some will point out that Yellen didn’t specifically address insurance for deposits of over $250,000 the FDIC insurance limit, which involves not only Circle, but also other companies like Roku and Roblox (it’s definitely not raining tacos now). All these companies and more had significantly more than $250,000 dollars held with SVB, so if Yellen says there’s no bailout, aren’t they pretty much SOL?

Perhaps, but this has happened before, and FDIC stepped in to cover all deposits.

The Bank of New England Corp.

If you haven’t heard of of the Bank of New England Corp., then I’m guessing you’re probably a millennial.

Back in January 1991, the Bank of New England filed for bankruptcy and had its assets liquidated. In response, Jerome Powell (who worked for the U.S. Treasury at the time) said in a 2013 speech:

My Treasury colleagues and I joined representatives of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board in a conference room on a Sunday morning. We came to understand that either the FDIC
would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning — the first such run since 1933. We chose the first option, without dissent.

In other words, the FDIC limit was raised in order to not cause further contagion and collapse of other financial institutions. To be explicitly clear, with the Bank of New England, there was no bank bailout, but depositors (even those over the FDIC limit) were still made whole.

In the case of New England, they made an immediate decision. How come we haven’t heard anything yet on SVB/Circle?

Once again in Janet Yellen’s interview, she specifically mentioned that they were looking at acquisitions:

So this is really a decision for the FDIC, as it decides on what the best course is to resolve this firm. And I’m sure they’re considering a wide range of available options. That would include acquisitions.

In other words, they’re most likely looking to see whether or not a 3rd party will come in to hopefully make SVB solvent, which is exactly what happened in 2008 with IndyMac Bank, a bank that failed in 2008

Seized by FDIC , according to the wiki, IndyMac was “acquired by IMB HoldCo LLC who turned this into OneWest Bank” in 2009. However it’s still important to note, that even if an acquisition takes place, history has shown that all customers above the FDIC still might get a haircut. In IndyMac’s case, there was an estimated 10,000 depositors over the FDIC limit who were guaranteed only 50% of their deposit.

A big blight for IndyMac however was that it was bank that was considered to be doing a lot of risky banking practices including sub-prime mortgages. On the otherhand, to my understanding the main issue with SVB was that it was simply illiquid with having too much locked up in 10-year government bonds, meaning that they were much safer but didn’t have the cash on hand to give everyone’s money all back at once.

As far as I know, there hasn’t been any public announcements of any possible acquisitions taking place, but this leads me to my next point…

Even if SVB fails, someone could still bail out Circle.

Circle has proven to be extremely profitable and compliant with regulators, which is one of the reasons why they’ve been able to raise so much money since inception. With so many big players such as Fidelity and Blackrock already involved and having invested $100’s of millions of dollars into the company, assuming the government doesn’t step in AND assuming that there’s no one else to help backstop SVB, I would imagine that there would be a significant chance that one of these TradFi “big boys,” stepping in to help get them out of their hole.

I’m definitely not a TradFi-native, but for a layman like me, it still seems like it’s a relatively easy money-printing business model:

  1. Take users’ cash deposits
  2. Stick them into treasury bills to accrue interest
  3. Repeat

My guess that the big reason why we haven’t heard about any of the players stepping up is because it’s still uncertain as to what will become of SVB.

OK, so what if the government doesn’t step, there’s no acquisition of SVB, and no one helps bail out Circle? Well this leads me to my last and final point:

If something isn’t done, then contagion will most likely occur

According to an update they released yesterday (March 11th, 2023), Circle reported they had $9.7 billion dollars worth of cash, with $3.3 billion of it held in SVB. Interestingly they also said that the remaining cash was deposited $5.4 billion of it into BNY Mellon, and then $1 billion held in Customers Bank.

This is a significant difference compared to what they published publicly in their latest USDC reserve report from January 2023, where close to $8.7 billions dollars worth of $USD was reported being held at the following financial institutions (banks): Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, a division of Flagstar Bank, N.A., Signature Bank, Silicon Valley Bank and Silvergate Bank.

What’s my point with all this?

Spooked markets can cause MASSIVE and quick shifts in capital to different places, and without a government backstop in place, if we aggregate this behavior out to all the different companies that were effected (or even ones that weren’t), come next week I imagine that many companies like Circle will be scrambling to get all the cash they can in order to suit the needs for people wanting to pull out. Inevitably in this cash grab, bank runs will occur and I imagine that SVB wasn’t the only one that wasn’t completely solvent.

Inescapably, this will make the FUDders like Peter Schiff be right:



Once again, I am really only a guy that reads news articles, so there might be a great deal that I’m ignorant of when it comes to bank failures and how they may or may not get bailed out or acquired. If you feel like there’s something important that I’ve missed, please feel free to let me know in the comments below.

What I do know for certain however is that the next few days if not weeks are going to get really turbulent and dicey. The market as a whole is clearly spooked, with even the big 4 banks (JP Morgan Chase, Bank of America, Wells Fargo, and Morgan Stanley) losing a collective $55 billion in just the last two days. And if TradFi is going to be that volatile, you can sure as hell bet that crypto will be too.

As always, thanks for taking the time to read this and be sure to follow me on twitter ( to get all my latest updates. Also, looking for a gift for your Crypto-loving/hating friend? Give them a REKT journal to cheer them up!

Disclaimer: And as a final reminder, this is not financial advice and this is for educational and entertainment purposes only. Please as always, do your own research and find what investments are best for you, especially when it comes to leverage. Cheers everyone!

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Messin' With Cryptos
Messin' With Cryptos

I've made a ton of mistakes along the way in the world of Defi and cryptocurrency. Hopefully by taking some of the lessons learned and cues i've went through, you'll be a bit more success

Messin' around with Crypto's
Messin' around with Crypto's

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