They largely sit outside the purview of the fiat monetary system and regulatory regimes. Ultimately, the bank realized a $1.8 billion loss on a portfolio of Treasuries it sold to ensure it had enough cash to meet depositors' needs.Ĭustomers of collapsed cryptocurrency companies haven't been so luckyĬryptocurrencies have an attractive pitch. The problem was that it bought long-dated maturities with very low rates of return, and when interest rates began to rise rapidly in 2022, the value of those bonds began to fall (price and yield have an inverse relationship when it comes to bonds).Īt the very same time, the bank's deposit base was under pressure because its customers were primarily in the technology sector, and with the weak economic environment, they were burning lots of cash and raising less venture money to replenish their balances. Banks and financial institutions have effectively been regulated out of taking extreme risks, especially with their customers' deposits.įor the most part, Silicon Valley Bank invested its customers' deposits in safe assets like U.S. government - in conjunction with regulators - has tightened its grip on the financial system to prevent a repeat of that catastrophe. Since the 2008 global financial crisis, the U.S. But the key takeaway is that depositors have been protected from incurring any losses, which is in stark contrast to the result for customers of collapsed cryptocurrency companies in the past. SVB Financial ( SIVB.Q -7.73%) was the parent company of Silicon Valley Bank, which just became the second largest financial institution to collapse in U.S. government, is a perfect example of why investors should keep their money within the regulated monetary system and outside of the cryptocurrency ecosystem.
The turmoil in the banking sector over the past week, and the subsequent response by the U.S.
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