Cointime

Download App
iOS & Android

Cathie Wood: Fed Policy Was the Primary Culprit of SVB and Signature Bankruptcy

Cointime Official

Cathie Wood, the founder and CEO of ARK Invest, has responded to a letter sent by Congressman Tom Emmer to FDIC Chairman Gruenberg.

In his letter, Emmer expressed concerns about reports that the FDIC is using recent banking instability as a pretext to restrict legal crypto activity in the US.

Wood, who is known for her bullish stance on crypto, tweeted that if these reports are true, it could prevent the US from participating in the most important phase of the internet revolution.

She also shared Emmer's view that regulators may be using crypto as a scapegoat for their own lack of oversight of traditional banking.

Full thread:

Despite a yield curve that inverted last July - and credit default swaps that started flashing red - the Fed continued to vote UNANIMOUSLY to jack rates up in 75 basis point increments. They paid no heed to commodity prices and other inflation indicators that were unwinding.

Many banks made two assumptions that are haunting them now. The first was that interest rates would remain low for an extended period of time, and the second, that deposits would continue to increase. After all, they had not declined on a year-over-year basis since the 1930s.

Flush with cash from stimulus payments during the coronavirus crisis and concerned about a lack of lending opportunities in a serious recession, many banks like SVB plowed those funds into “safe” long term bonds yielding 1-2%, intending to hold them to maturity.

Crypto had nothing to do with the banks’ investment decisions, nor the Fed’s decision to jack up interest rates 19-fold in less than a year. Incorrectly assuming that it was fighting a seventies-style inflation, the Fed caught many regional banks off sides with unrealized losses.

Because they intended to hold the long term securities to maturity (HTM), banks did not have to mark them to market unless sold: they would get their principal back upon maturity, despite subpar returns in the interim.

Unfortunately, the second assumption - stable to increasing deposits - also was incorrect. Venture funding dried up so startups started draining their deposit accounts and, elsewhere, uninsured money market funds started bidding for accounts with 4-5% interest rates.

The asset/liability duration mismatch - securities earning only 1-2% vs. deposits paying 3-5% - became untenable as deposits started leaving the system. Like SVB, some banks were forced to sell HTM securities, recognizing losses that depleted their equity accounts.

Crypto did not force SVB and Signature into bankruptcy. In my view, Fed policy was the primary culprit. Because of a VC funding drought and higher yields on money market funds, deposits left the US banking system.

I am baffled that banks and regulators could not convince the Fed that disaster loomed. Did they not understand that the asset/liability mismatch - normal in most circumstances for banks - was untenable as deposits left the banking system for the first time since the 1930s?

This debacle would not have been possible in the decentralized, transparent, auditable, and over-collateralized crypto asset ecosystem. Indeed, during the last week, crypt assets behaved like safe havens: along with gold, their prices appreciated.

In our view crypto is a solution to the central points of failure, the opacity, and the regulatory mistakes in the traditional financial system. Made the scapegoat for policy mistakes, crypto will move offshore, depriving the US of one of the most important innovations in history

Comments

All Comments

Recommended for you

  • BTC Surpasses $82,000

    Market data shows that BTC has surpassed $82,000, currently priced at $82,038.65, with a 24-hour increase of 0.31%. The market is experiencing significant volatility, so please ensure proper risk management.

  • ETH Surpasses $2400

    Market data shows that ETH has surpassed $2400, currently priced at $2400.26, with a 24-hour decline of 1.33%. The market is experiencing significant volatility, so please ensure proper risk management.

  • BTC Surpasses $81,000

    Market data shows that BTC has surpassed $81,000, currently priced at $81,016.34, with a 24-hour decline of 1.53%. The market is experiencing significant volatility, so please ensure proper risk management.

  • BTC Falls Below $80,000

    Market data shows that BTC has fallen below $80,000, currently priced at $79,940.09, with a 24-hour decline of 3.44%. The market is experiencing significant volatility, so please ensure proper risk management.

  • Philadelphia Semiconductor Index Set to Lose Over $2 Trillion in Market Value in Seven Trading Days

    The Philadelphia Semiconductor Index is poised to evaporate over $2 trillion in market value within seven trading days.

  • Philadelphia Semiconductor Index Drops 4% to Lowest Level in Nearly a Month

    The Philadelphia Semiconductor Index fell by 4.01% during the day, currently reported at 11,215.37 points. Nvidia dropped by 3.25%, Broadcom fell by 2.87%, Micron decreased by 5.79%, Intel declined by 5.81%, AMD dropped by 6.28%, Qualcomm rose by 0.66%, TSMC fell by 4.37%, and ASML decreased by 3.34%.

  • Philadelphia Semiconductor Index Falls 4% to Lowest Level in Nearly a Month

    The Philadelphia Semiconductor Index dropped 4.01% during the day, currently reported at 11,215.37 points. Nvidia fell by 3.25%, Broadcom by 2.87%, Micron by 5.79%, Intel by 5.81%, AMD by 6.28%, Qualcomm rose by 0.66%, TSMC fell by 4.37%, and ASML dropped by 3.34%.

  • Ripple Prime Launches Perpetual Contract Trading Services for Institutional Clients

    According to Bloomberg, Ripple's main brokerage division, Ripple Prime, is launching perpetual contracts for real-world assets (RWA) aimed at institutional clients, covering over 100 reference markets including stocks, indices, ETFs, and commodities. This product is offered through Trade.xyz on Hyperliquid, continuing Ripple Prime's previous initiative to provide clients with access to cryptocurrency perpetual contract trading.

  • NYC Comptroller Urges Anthropic to Pause IPO Plans

    On October 15, New York City Comptroller Mark Levine stated in an interview that he has written to Anthropic CEO Dario Amodei, urging the company to suspend its planned initial public offering (IPO). In the letter, he called for Anthropic to pause its IPO plans until it can fully and transparently address concerns related to AI safety, governance, and development that the company itself has raised. Levine wrote that the company should focus on mitigating these risks rather than advancing the IPO. Currently, New York City has an investment exposure of less than $10 million in Anthropic through the private market.

  • US September PPI Rises 6.3% Year-on-Year, Exceeding Market Expectations

    The US Producer Price Index (PPI) for September recorded a year-on-year increase of 6.3%, the highest since May 2026, surpassing market expectations of 5.3%. The month-on-month PPI for September was reported at 1.3%, significantly higher than the market forecast of 0.5%. Additionally, US retail sales for September showed a month-on-month increase of 0.8%, also exceeding market expectations.