US Bank Woes? Silicon Valley Bank Stocks Plunge
Concerns have been raised about the financial health of technology-focused banks stocks serving crypto-friendly V.C.s such as Sequoia and a16z.
Concerns about the future of another U.S. bank rose this week after Silicon Valley Bank (SVB) announced a major sale of assets and shares to raise additional capital. However, some investors may be concerned that tech-focused startups and VC-focused banks aren’t all doing well. Silicon Valley Bank Stocks price fell more than 60% of his, wiping out about $80 billion in value from the bank’s stock.
SVB is one of the top 20 banks in the U.S. and provides banking services to crypto-friendly ventures such as Sequoia and Andreessen Horowitz (a16z).
In its March 8 financial report, it said it had sold $21 billion worth of securities holdings for a loss of $1.8 billion and bolstered its balance sheet.
Silicon Valley Bank (SVB), known for catering to startups and venture capitalists, experienced a plunge in its stock value following the Silvergate downfall, one of its competitors. SVB’s shares fell 4.4% on Monday after the announcement of Silvergate’s poor financial results, which demonstrated a decline in deposits, slower loan growth, and an increase in non-performing assets.
Silvergate’s shares dropped over 18% on Monday after the bank announced that it anticipated a significant decline in its earnings in its next quarterly report, primarily driven by its crypto activities, specifically its Bitcoin lending business. The bank’s balance sheet was affected by a substantial reduction in deposits from digital currency businesses as the cryptocurrency market has experienced a slight downturn recently.
The decline in Silvergate’s financials triggered concerns among investors over the digital currency exchange’s impact on the banking industry, especially given the risk that virtual currencies pose to banks due to their high volatility and lack of regulation. The uncertainty in the regulatory framework surrounding cryptocurrencies has also led many banking institutions to shy away from interaction with the crypto markets.
Silicon Valley Bank is also one of the few banks that cater to digital currency enterprises, accounting for nearly one-quarter of SVB’s total loan originations in Q3 last year, primarily driven by the crypto sector. However, with the recent downturn, the multi-billion-dollar market may see a decline in operators, resulting in a drop in SVB’s profits.
Silvergate and Silicon Valley Bank are two of the only banks in the U.S. that facilitate transactions for cryptocurrency companies. While this is a lucrative niche market, the banks’ balance sheets will be hit hard if crypto markets continue to plummet. Due to this, banks need to develop a more diversified portfolio and look beyond the digital currency market to mitigate the impact of such downfalls.
The decline in the financials of Silvergate has triggered a drop in the value of SVB’s shares, emphasizing the industry’s overall vulnerability. The dependency of these banks on the crypto space has made them vulnerable to market fluctuations, evident in the recent downturn. However, the situation indicates the need for banks to look beyond the crypto niche for growth and sustain their business in the long run