Last week, we saw the biggest bank failures since the 2008 Financial Crisis. And it sent the markets into a tailspin…
The first to fail was California-based Silvergate Bank.
Silvergate provided traditional financial services, including real estate and business loans. It was the only major U.S. bank to provide extensive digital currency services to institutional clients.
On Wednesday, the bank announced it will wind down operations and liquidate amid mounting losses… customer defections… and regulatory pressure.
(In full disclosure, Silvergate was a recommendation in my Palm Beach Confidential crypto newsletter. Fortunately, we had the foresight to close out our position in November 2022. We booked a combined 584% gain on the sell.)
But the Silvergate news was just the appetizer. The main course came on Friday…
That’s when regulators shut down Silicon Valley Bank (SVB) after deposit outflows and a failed capital raise plunged the institution into crisis. SVB was the 16th-largest bank in the nation, with $209 billion in assets.
It’s the largest bank to fail since Seattle’s Washington Mutual during the height of the 2008 Financial Crisis.
The markets reacted violently to the news of SVB’s imminent collapse. The S&P 500 dropped 3.3%. And bitcoin fell 9.7% before rallying back.
And late Sunday night, New York regulators shut down Signature Bank. Like Silvergate and SVB, Signature was a major lender to the crypto industry.
Today, I want to give you some context behind these bank failures… And why we could see another crypto panic later this month…
What Really Caused the Bank Collapses
Both Silvergate and SVB had outsized exposure to the crypto space. So I expect a lot of mainstream analysts to blame crypto for their downfall.
For instance, Circle, the operator of one of the world’s largest stablecoins, said $3.3 billion of its reserves are trapped in SVB.
Circle’s USD Coin (USDC) is the second-largest stablecoin on the crypto market, with $42 billion in circulation, according to company data.
Silvergate Bank was a major player in on- and off-ramping for institutional crypto clients. Based on its deposits, that segment made up 70% of its business.
Silvergate suffered a run on deposits after the collapse of FTX in November. It lost $1 billion in the fourth quarter alone when it had to sell debt securities earlier than planned to cover deposit withdrawals.
As of September, almost a quarter of Signature’s deposits came from the cryptocurrency sector. So it had a great deal of exposure to crypto, too.
Because these three banks were heavily involved in the crypto space, you’ll see a lot of hand-wringing about the risks of crypto.
But I want you to know that these Monday-morning quarterbacks are wrong.
Because when you actually look beneath the surface, you’ll see crypto played no role in the demise of these banks.
The actual cause of their collapses is what Wall Street calls “duration mismatch.”
To make a long story short, they had loaded up on long-term bonds when rates were below 2%.
As rates have steadily risen, the bonds they bought have plunged in value.
Here’s where the trouble started…
When a bank’s can’t cover customer withdrawal requests, it has to either sell assets or raise more capital by selling stock.
For example, SVB was already saddled with $2.1 billion in realized losses on its bond portfolios… so it decided to sell $2 billion worth of new stock.
But it communicated its plan to issue more shares to the market during a time of extreme panic.
The news spooked the big venture capitalists that advise the companies SVB catered to..
The venture capitalists demanded that their portfolio companies remove their capital from SVB immediately. In just a matter of hours, companies took $42 billion out of the bank.
This sparked a massive bank run in which everybody “ran” to the bank to remove their cash.
No bank keeps enough liquid cash on hand to pay out all of their depositors at once. So Silvergate and SVB literally went bankrupt… While regulators stepped in to prevent the same happening to Signature.
What This Means for Crypto
As I mentioned above, both SVB and Silvergate had heavy exposure to the crypto space. So their closures will be a big problem for U.S. centralized crypto companies that were depositors with these banks.
For instance, Circle’s stablecoin, USDC, temporarily lost its peg to the U.S. dollar. Before a rescue plan was announced Sunday evening, USDC was trading at 90 cents on the dollar.
As for bitcoin, it dropped nearly 10% to below $20,000 on the news of the bank collapses.
I immediately put out a video alert to my subscribers telling them BTC was a buy below $20,000. Since then it’s rebounded as much as 21% to over $24,000.
Friends, I don’t think we’re at the end of this volatility… But I wanted to convey to you that this isn’t a crypto problem.
This problem has stemmed from two things.
The first is the Federal Reserve’s hawkish policy to raise interest rates to bring down inflation, which has hammered the value of long-duration bonds.
Second is the greed and stupidity of bankers who went out and bought these bonds.
Why would you buy long-duration bonds when Fed Chairman Jerome Powell is telling you consistently he’s raising interest rates?
And then why would you buy long-duration bonds and not hedge your position? I mean, this is insanity, right?
These are supposedly smart, highly credentialed people. They’re managing billions of dollars… And now they’ve blown up billions in shareholder, bondholder – and until Sunday night’s rescue – depositor value.
While crypto isn’t the cause of this panic… There’s a massive panic coming to crypto… potentially before the end of this month.
The losses from this event could wipe out millions of crypto investors while a select well-informed few will go on to make a life-changing killing from the panic.
If you’re in crypto or have been thinking about getting into crypto… Please don’t do anything until I’ve had the chance to share my latest research with you on this next panic.
On Wednesday, March 22, at 8 p.m. ET, I’m hosting a special event called The Crypto Panic of 2023. During this event, I’ll explain everything about this next panic… and how it could completely remake and replace the current top crypto coins.
It’s free to attend. And I’ll even provide you with my top recommendation on how to play this panic FOR FREE. No strings attached.
So click here to reserve your seat, and your email address will automatically be added to my RSVP list.
Again, if you own crypto assets or are thinking about buying crypto assets, please don’t take any action until you review my latest research on the coming crypto panic on Wednesday, March 22, at 8 p.m. ET.
Let the Game Come to You!
P.S. I also want to give you access to a series of tutorials that will show you how to get started investing in crypto, step-by-step, no matter your tech expertise.
Typically, these videos are locked behind a $2,500 paywall. But you’ll have them for free. All you need to do is upgrade to VIP.
When you upgrade, I’ll give you a special report called Teeka’s Secret to 10,000% Gains, which explains how I’ve given my readers the chance to turn volatility into huge profits.
Click here to learn more, and your email address will automatically be added to my RSVP list.