🚨 Breaking news from the world of #crypto and #Web3: Silvergate Capital, a bank that bet big on servicing the emerging crypto economy, announced it will wind down bank operations by liquidating its assets and paying back all of it customers. Silicon Valley Bank, which managed money for venture capital-funded startups, was shut down by state regulators. Both banks were undone by classic bank runs. In both cases, U.S. Treasury bonds made up large portions of the money-losing liquidations. Rising yields on U.S. Treasurys would crowd out new investments in high-risk sectors including tech and crypto.
However, there are two upstream sources for these problems: Real business cycle issues, and Federal Reserve interest rate tightening. Those factors are also interrelated, and essentially go back to COVID-driven disruptions. The issuance of new Treasury bonds with higher yields has lowered the market value of pre-hike bonds with lower yields, threatening banks’ stability.
It’s probably closer to the truth that everyone is simply escaping the same COVID-wrought shipwreck in the same leaky lifeboat, while fighting over who gets eaten first. Every bank in America, whether they’re funding server farms or the literal corn and peas variety, is facing many of the same structural pressures. Their root cause is a massive real disruption in the economy – a virus that has killed more than six million people.