The narrative of the sudden death of U.S. banks Silvergate, Silicon Valley Bank, and most recently Signature Bank sounds like a complicated conspiracy story written by John Grisham, Ken Follet, or John Le Carre. The main character is Sam Bankman-Fried (SBF). He allegedly intentionally triggered the collapse of the Terra-Luna stablecoin scheme in 2022 and, with it, the implosion of the worldwide crypto scene, which finally also swept the banking scene, forcing states and regulators to intervene.
In the last week, we have seen three banks worth billions just a short time ago, experiencing a sudden death. Nasdaq-listed Silicon Valley Bank had a market capitalization of $16 billion just two weeks ago. Now it’s gone, dying a sudden death within just under 72 hours due to panic, including a bank run.
This sudden death of banks and panic in the traditional and new, blockchain-based financial industry certainly has various causes. However, the collapse of the Terra-Luna stablecoin system can be identified as the key event that triggered this sudden death virus.
In the startup and crypto hype before the Terra-Luna collapse in the spring of 2022, much like the Lehman collapse in 2008, the significant players networked closely, borrowed funds from each other, invested in each other, and gave collateral worth nothing. They pushed each other up; only the sky was the limit. With the collapse of Terra-Luna, it was, therefore, logical that the infamous domino effect was triggered. It first hit crypto hedge fund Three Arrows Capital (3AC) in the first cycle, then crypto lenders Voyager Digital and Celsius Network, and culminated with the bankruptcy of Sam Bankman Fried’s (SBF) crypto exchange FTX.
The cynicism (and the irony) of this narrative, if true, is that SBF was accused of intentionally causing the collapse of Terra-Luna in the first place. On Twitter, screenshots of corresponding communications between SBF and other crypto chieftains were distributed.
The spillover of the sudden death virus to traditional banks is no surprise. Crypto-friendly small banks like Silvergate, Silicon Valley Bank, and Signature Bank have benefited enormously from the crypto hype by cooperating with the big crypto schemes. Their insolvency and the resulting collapse of crypto (digital) asset prices drove them into trouble. The resulting nervousness of investors and customers has developed into a panic known to lead to bank runs. That’s what we’re experiencing right now.
This is the main thread of the narrative. Besides, as with any well-written conspiracy thriller, there are subplots and supporting characters. Of course, there is Binance and Changpeng Zhao, but also the Digital Currency Group around Barry Silbert, to mention two. An important subplot would also be the failure of U.S. regulators and politicians in connection with the crypto industry in general and SBF in particular. SBF has bought the negligent kindness of the U.S. establishment with large donations. The geopolitical component with China and the U.S. should also be mentioned, but that needs a long-form narrative.