SVB Crisis: What Lessons Can Crypto Investors Learn From The Collapse Of US Banks?

Rajagopal Menon, Vice President, WazirX said, “The New York Department of Financial Services has taken over Signature Bank, a key intermediary between the fiat and crypto worlds. Following the collapse of Silver Gate and SVB Banks, who have Is crypto and VC concentration risk respectively, this move affects stablecoins and cryptos.”

When svb The crypto market was shocked after one of the largest USDC operators, Circle, announced that it had $3.3 billion in reserves backing the token that was stored with the bank.

Other major crypto companies such as Coinbase Global Inc and Paxos Inc are reportedly in contact with these failed US banks. Signature Bank in particular is said to be one of the largest lenders to crypto.

Bloomberg previously reported that Signature had begun a pullback from digital assets in the wake of the explosion. ftx exchange But there were still $16.5 billion in crypto-related client deposits as of March 8. Signature and Silvergate enable faster payments between clients such as hedge funds and exchanges, while supporting digital-asset liquidity.

According to Menon, the action is aimed at preventing contagion of the banking sector, but the uncertainty could worsen the credit situation.

However, the crypto market has been volatile, with developments in these banks registering a seesaw pattern in their performance. Furthermore, US regulators assuring depositors and borrowers of their money at SVB and Signature Bank have played a role in calming the bear storm in the crypto market.

But just in case, the WazirX VP highlighted important lessons for crypto investors to learn from the US banks’ fallout. These:

Lessons for investors:

1. Never blindly listen to analysts or media while investing in shares. Always do your own research and make informed decisions. In November 2022, JP Morgan had a buy call on SVB. A glance at the balance sheet would reveal that although their equity looks good on paper, if they were to mark to market the fair value of their securities portfolio it would create a loss that was almost equal to the equity of the business . In fact Forbes has placed SVB among America’s Best Banks.

2. Beware of companies that are highly leveraged, and prefer to invest in companies with little or no debt. Banks are inherently highly leveraged compared to tech companies, for example which have little or no debt.

3. Diversification is important. While Warren Buffett prefers focused diversification, holding only 30 or 40 companies, it is important to have a minimum of 8 to 10 stocks in your portfolio, with no stock accounting for more than 10% of your portfolio value.

4. Protect your capital and avoid permanent losses. Hold on to large companies that are undervalued, and keep the volatility in check. If you’ve bought large companies for less than they’re worth, it’s impossible to lose money on an en masse basis.

“Will be watching the crypto sector developments closely, especially with regard to stable coins,” Menon said.

On Wednesday, the crypto market erased its early gains and entered the red zone as banks globally eased liquidity risks.

At the time of this writing, the global crypto market cap was trading at $1.06 trillion, down 6.32% over the previous day. Bitcoin is the top trending cryptocurrency. The leader across the board, bitcoin fell almost 6%. While Ethereum dipped over 7%, BNB dropped nearly 4%, XRP dipped nearly 6%, Cardano dived over 11%, while Polygon and Dogecoin also fell nearly 11% and 10%, respectively.