What happened
Cryptocurrencies have had a rough couple of days as word spread that the influential Silicon Valley Bank, which trades under SVB Financial Group (SIVB +0.00%), is facing a liquidity crisis. While this isn't directly a hit to crypto, many venture capital firms use Silicon Valley Bank, so there's a risk of a broader financial impact, which is why cryptocurrencies are down Friday.
As of 10:30 a.m. ET, Bitcoin (BTC +0.85%) had fallen by 8.5% over the prior 24 hours, Ethereum (ETH +1.50%) had fallen 8.8%, and Solana (SOL +4.97%) was down 5.7%. Looking further back, over the past seven days, those cryptocurrencies are down 11.2%, 10.7%, and 18.5% respectively.
CRYPTO: BTC
Key Data Points
So what
The two major events of the past week have been the collapse of Silvergate Capital and the potential collapse of Silicon Valley Bank. Silvergate provided a direct gateway into cryptocurrencies for many wealthy investors and institutions, and even operates many publicly traded funds. But it was seen as a more crypto-specific bank.
This week's bank run on Silicon Valley Bank is more concerning for the broader tech ecosystem. It is used by many start-ups and provides services small companies need in order to scale their businesses quickly.
Contagion, or cascading risks from one entity to another, is the biggest fear here. That could lead to less lending and investors pulling back their investments. Silicon Valley's venture capital firms provide the fuel for the tech ecosystem, and anything that impacts them could impact a lot of smaller start-ups.
CRYPTO: ETH
Key Data Points
As far as crypto goes, dozens of blockchain start-ups have been funded by venture capitalists in Silicon Valley. If they face pressure from regulators, banks and ultimately, investors, they may not be able to build the tools and services that are intended to make cryptocurrencies like Bitcoin, Ethereum, and Solana more useful, and thus more valuable.
In short, these ecosystems are intertwined, and the fear this week is that a collapse of Silicon Valley Bank will make this crypto winter even worse.
Now what
The risk to financial institutions can't be understated because they're critical to making the financial system work. When lending pulls back all at once or there's a credit crisis, there can be an economywide impact, as we saw in 2008 and 2009.
The Labor Department's February jobs report Friday morning did provide some positive news. The U.S. economy added 311,000 non-farm jobs last month, but more people entered the workforce to seek jobs, so the unemployment rate rose to 3.6%. So far, the tech sector slowdown, the crypto collapse, and the downfall of some banks haven't spilled over to the broader economy.
Investors with a long-term view should start looking at this as a buying opportunity for high-quality cryptocurrencies. Despite the downturn in token values, the crypto industry continues to grow and innovate, which is ultimately what's going to drive value.
I don't know if we are at or even near the bottom, but I am betting on innovation in the blockchain winning in the long term. The Ethereum and Solana blockchains are where most developers are building, and that's where I'm looking to be a buyer if this crash gets worse.
