“People are just traumatized. They’re financially shellshocked,” said Sam Kazemian, the founder of the crypto project Frax. “As soon as you see something, you wonder if there’s fire over there because it smells like smoke. And then you treat it like everything is burning and get out while you still can.”
Silicon Valley Bank started wobbling on Wednesday, when it revealed that it had lost nearly $2 billion and announced it would sell off assets to meet demand for withdrawals. The news set off fear in the tech industry, as start-ups rushed to get their money out.
As often happens in bank runs, those concerns became a self-fulfilling prophecy. On Friday, the Federal Deposit Insurance Corporation announced that it was taking control of Silicon Valley Bank, marking the largest bank failure since the 2008 financial crisis. Tech companies with money deposited in the bank scrambled to pay employees and vendors.
Silicon Valley Bank was in “sound financial condition prior to March 9,” according to an order from California’s Department of Financial Protection and Innovation. It became insolvent after investors and depositors caused a run on its holdings, the order said.
Silicon Valley Bank appears to have had a relatively small footprint in the crypto industry. Historically, many large banks have resisted working with crypto companies, given the legal uncertainty surrounding much of the business.
“A lot of crypto start-ups had a very hard time onboarding onto Silicon Valley Bank,” said Haseeb Qureshi, a crypto investor at the venture capital firm Dragonfly. “So our exposure is a lot less than we anticipated.”
There was at least one notable exception. Circle, a company that issues stablecoins, a linchpin in crypto trading, keeps a portion of its cash reserves at Silicon Valley Bank, according to its financial statements.
This content was originally published here.
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