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Why the Silicon Valley bankruptcy case is the complete opposite of Bitcoin

Important facts:
  • After the bankruptcy, US regulators took control of the institute.

  • More than 175,000 million US dollars are stored in the coffers of the Silicon Valley Bank.

Silicon Valley Bank (SVB), a technology-focused bank based in California, has filed for bankruptcy. This is the biggest bank failure since the 2008 real estate crisis.

Financial problems and bad administration led to the debacle of this institution. Let’s dive into the timeline of his debacle: In the past two years, the bank has bought billions of dollars worth of bonds (sovereign debt issued by the United States), common practice among banking institutions.

For years, interest rates allowed these bonds to be held without too much risk. However, rampant inflation in the United States prompted the Federal Reserve to raise interest rates significantly as a containment measure against inflation, as CriptoNoticias has reported on multiple occasions. This caused the bonds to fall in value, affecting more than one American institution.

While this may not be a problem as the bank does not incur losses as long as it does not sell the invested assets, this week saw massive withdrawals totaling $42 billion. forced the Silicon Valley bank to sell a $21 billion portfolio of bonds to cover its liquidity. As bond prices fell, losses from the sale totaled more than $1.8 billion. Figure similar to total bank income in 2021.

Due to the situation, the bank decided to restructuring their assets to raise capital. However, due to the way the finances were handled, investors had lost all confidence in the institute. Because of this series of events, Silicon Valley Bank is filing for bankruptcy today, leaving thousands of customers waiting to see what happens to their money.

Regulators intervene and cryptocurrencies are also suffering from the debacle

On Jan. 11, SVB was seized by US regulators, specifically the Federal Deposit Insurance Corporation (FDIC), because the company was unable to raise sufficient funds to pay its investors. According to the FDICthe bank was closed to “protect the insured users”.

That’s what the FDIC determined Insured investors have no later than Monday, April 13. However, those who had no insurance coverage are at the mercy of regulators.

For now, the FDIC has advised that the uninsured will receive an advance dividend in the coming weeks, the amount is unknown or if they will be able to recover the entire funds. US Treasury Secretary Yanet Yellen pointed out The Federal Reserve will not bail out the SVBso investors’ money may be at risk.

As this is a company with assets in excess of $200,000 million, the specialists indicate that a bank run may occur, which is seeing a domino effect with more and more financial firms going bankrupt because of the SVB’s debt obligations to other banks. During the collapse of the SVB, 4 of the major banks in the United States, they lost nearly $52 billion.

Since SVB is a bank in the technology sector, some companies in the cryptocurrency space have been affected by its recent closure. For example, Circle, the company behind the development of USD Coin (USDC), had more than $3.3 billion exposure to SVB, a situation that impacted USDC parity due to the loss of confidence, reaching trading below 0 $.9 as reported by CriptoNoticias.

Other companies in the sector also have exposure to SVB: avalanche, with a commitment of $1.6 billion. Pantera Capital, a venture capital firm that told the Securities and Exchange Commission (SEC) that it used Silicon Valley Bank to hold its funds. And Yuga Labs, the company behind the development of the NFT Bored Ape explained have “very limited exposure” to SVB.

Confidence broken, Bitcoin could be the answer

The harsh reality of everything that is happening is that Silicon Valley Bank investors could not withdraw their own money from the bankin addition to the fact that this will not be possible until the FDIC defines the terms of the withdrawals.

SVB’s bankruptcy is a testament to the crumbling of confidence in a system like banking, where even investors don’t trust the company to raise capital, and even the Federal Reserve itself won’t come to their rescue. It’s a pyramid of cards where Silicon Valley relied on the stability of bond prices, investors trusted Silicon Valley, but in the end the promise of security could not be kept. And so the trust is broken.

The key is that banking systems are based on trust. Savers give their money to an institution they trust, and they in turn trust other institutions like the SVB and the Federal Reserve to operate and make profits.

The breach of institutional trust is nothing new, in 2008 Lehman Brothersan investment bank, saw his capital squandered after exposure to risky assets was revealedresulting in investors attempting to withdraw all of their money within hours, bankrupting the institution.

On the same dates, Bitcoin took its first steps. And it was perhaps a reaction to that trust system that was collapsing and collapsing. Satoshi Nakamoto himself, creator of Bitcoin, declared the creation of Bitcoin to be the birth of a system that does not require trust or a third party to function.

“What is needed is an electronic payment system that is based on cryptographic proof rather than trust and allows two parties to transact directly with each other without the need for a trusted intermediary,” Bitcoin White Paper«

Satoshi Nakamoto

Every transaction in Bitcoin is protected by the protocol itself. Every user owns every coin they own. SVB scored the stablecoins because there is a third party holding the reserves of these stablecoins. With Bitcoin, there is no third party like SVB that can go bankrupt and bring all of its investors’ capital to its knees. Therein lies its power, and in the same essence lies the example of why we need Bitcoin more and banks less.

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