BETA GLOBAL FINANCE: Silicon Valley Bank Collapse Favors Cryptocurrency and Precious Metals Markets
The collapse of Silicon Valley Bank, after revealing massive losses and failed capital infusion, was declared within 48 hours. This marked the biggest bank closure since the 2008 financial crisis and had significant short-term impacts on capital markets.
1. Why did Silicon Valley Bank reach this point?
In 2019, the Federal Reserve began implementing a loose monetary policy, causing Silicon Valley Bank deposits to surge from $61 billion in 2019 to $189 billion in 2021. In pursuit of increased investment returns, the bank aggressively purchased large amounts of fixed-income investment portfolios, especially mortgage-backed securities with maturities of over 10 years.
In 2022, the Federal Reserve rapidly raised interest rates, causing bond prices to plummet and resulting in substantial paper losses for Silicon Valley Bank's investment portfolio. In simple terms, the loose monetary policy of the Federal Reserve led to a surge in Silicon Valley Bank deposits, while the rapid interest rate hikes caused significant losses and liquidity shortages, leading to its sudden demise.
The fundamental reasons lie in two points: the Federal Reserve's policies and Silicon Valley Bank's investment methods.
2. Will this event lead to a new financial crisis?
Many investors may wonder if this event will trigger a severe financial storm, considering the rapid collapse of Silicon Valley Bank compared to the 3-month buildup before Lehman Bank's collapse in 2008.
The collapse of Silicon Valley Bank was due to a liquidity shortage, unlike the debt crisis that led to Lehman Bank's collapse. The nature of the two events is different, with liquidity shortage being easier to resolve by timely liquidity replenishment. Therefore, the probability of triggering a financial crisis due to Silicon Valley Bank's collapse is low, and investors are advised not to panic.
3. What impact will this event have on major markets?
1) Impact on the U.S. tech startup industry
Silicon Valley Bank was the largest bank in Silicon Valley with business ties to half of the U.S. tech companies, many of whom hold deposits with the bank. The bank was considered the heart of the U.S. tech industry, providing essential funding for startups and investment funds. The sudden collapse of Silicon Valley Bank, with funds locked and inaccessible, may result in many startups unable to pay employees or face closure, inflicting a lasting wound on the U.S. tech startup sector.
2) Impact on U.S. small and medium-sized banks
Issues exist in Silicon Valley Bank that are present in varying degrees in other U.S. banks. As Silicon Valley Bank was a star bank in the U.S., this event naturally stirs concerns among depositors about other small and medium-sized banks. Inadequate government assistance could lead to spreading panic, intensifying worries about other banks and potentially causing a chain reaction leading to more bank bankruptcies.
3) Impact on the Federal Reserve's interest rate hike process
The collapse of Silicon Valley Bank is closely linked to the Federal Reserve's rapid interest rate hikes. This event serves as a warning to the Fed that interest rate hikes come with costs and may have serious consequences at any time, putting the Fed in a dilemma. Over-hiking rates could potentially reveal new financial risks anytime, while insufficient rate hikes may hinder lowering stubbornly high inflation.
4) Impact on the U.S. dollar and forex markets
In this current rate-hiking cycle, record-breaking inflation combined with such financial system risks suggests increasing backfire from these actions. Undoubtedly, financial system risks are escalating. The collapse of Silicon Valley Bank underscores long-standing concerns that the Fed's series of aggressive rate hikes may adversely impact the global financial system. Heightened risks and damage to the U.S. dollar's credibility directly influence the forex market. Lessons from the serious misjudgment of the consequences of the 2007 U.S. subprime crisis should serve as a caution.
5) Silicon Valley Bank Collapse Favors Cryptocurrency and Precious Metals Markets
This event will be a significant test for the global financial system. It spells severe bearish implications for the stock market and the dollar, favoring cryptocurrency and precious metals in the short term. Both cryptocurrencies and gold are expected to see short-term gains.
In comparison, the cryptocurrency market is the most favorable. After this event, market expectations have shifted, and Bitcoin has seen an upward trend reversal. This is because the cryptocurrency market is a relatively pure market, with policy effects being relatively straightforward, resulting in smoother trends and making it easier to seize opportunities. Unlike other markets with complex influencing factors that can complicate analysis and decision-making, trading becomes easier in a comfortable market.
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