Silicon Valley Bank (SVB) was recently considered the go-to bank for venture capital and tech startups…

It has over $342 billion in client assets and was called the “startups bank.”

However, in just 36 hours, it all came crashing down…

Thousands of companies are now on the edge, and the damage to the economy is yet to be seen. Here’s everything you need to know about SVB’s downfall + how Bitcoin could have prevented this:

What happened to SVB?

Silicon Valley Bank, is a bank that specializes in serving the technology and venture capital industries (in particular US-based start-ups).

They made concentrated bets and invested heavily in safe assets like US Treasuries. This strategy worked well in a low-interest rate regime…

However, when the Fed started hiking rates last year, SVB made a risky bet that the Fed’s pace would be slower. They invested $100 billion into government-backed bonds and locked it away for 3–4 years at an interest rate of 1.79%

But, the FED started hiking rates fast, which made SBV’s bonds be worth significantly less than initally purchased…

Remember: Silicon Valley Bank used its client’s money to make these risky bets!

Ultimately SVB had to sell at a loss for liquidity. This loss became significant when SVB’s clients, mostly startups, started withdrawing more money to pay for expenses…

SVB needed money to fund withdrawals but had to take a loss on bonds to do this. On March 8, the company announced they would sell a third of ownership to raise $2.25 billion. But the next day, the stock dropped by 60% when word got out that the bank was facing insolvency issues. The CEO called clients to assure them their money was safe… hmmm

The problem with FDIC insurance

FDIC insurance is a type of deposit insurance offered by the Federal Deposit Insurance Corporation (FDIC) to protect depositors in case their bank fails or becomes insolvent.

Although the FDIC insurance covers accounts up to $250k, 97.3% of accounts at SVB were larger than that, as they were business accounts

Though the companies might get some of their money back when assets are sold, it might take years.

That’s an emergency because that money is needed for payroll, expenses, and just keeping companies running. Companies that saved up cash to prepare for a recession could now just die because they couldn’t access their money!

How could Bitcoin have prevented this?

Bitcoin operates differently from banks.

It’s decentralized, meaning it doesn’t rely on a central authority to operate. Instead, it uses a public ledger, known as the blockchain, to keep track of transactions. This makes it more transparent and secure than traditional banking systems.

Bitcoin doesn’t operate on a fractional reserve system, meaning there’s no risk of banks taking bets on what the Fed will do…

Additionally, Bitcoin is a finite currency, meaning there’s a limit to the number of Bitcoins that can be created. This makes it less susceptible to inflation and devaluation (unlike all fiat currencies which are becoming worthless due to skyhigh inflation)

Moreover, with Bitcoin, there’s no need to worry about FDIC insurance because it’s not a centralized authority. Instead, your funds are stored in a digital wallet, which only you have access to. This gives you complete control over your funds and eliminates the risk of banks failing or insolvency issues.

SVB’s failure is a significant blow to the tech world, and thousands of companies are now on the edge.

The problem with fractional reserve banking systems and FDIC insurance has been exposed, and it’s time to rethink our banking systems.

Bitcoin, with its decentralized nature and finite currency, could be the solution we need to prevent another SVB-like disaster!