What Happened
Cryptocurrency investors have experienced a tough few days due to news about SVB Financial Group (SIVB -60.41%) that is currently facing a liquidity crunch. Although this isn’t an immediate hit to crypto, many venture capitalists use SVB, increasing the risk of wider financial impacts, and leading to a downturn in cryptocurrency prices. As of 10:30 a.m. ET, Bitcoin (BTC -1.26%) had dropped 8.5% in the past 24 hours, Ethereum (ETH -1.22%) had declined 8.8%, and Solana (SOL 3.38%) was down 5.7%, with all three cryptocurrencies falling 11.2%, 10.7%, and 18.5% over the past seven days, respectively.
Why It Matters
The NASDAQ’s decline and the potential collapse of Silicon Valley Bank were two of the most important stories of the week. Silvergate Capital, a bank that many wealthy investors and institutions have used to access cryptocurrencies, it also operates many publicly traded funds, and is seen as a crypto-specific bank. This bank run is more alarming for the larger tech ecosystem as it is used by many start ups and offers the services small businesses need to scale quickly.
The greatest concern is contagion. Investors could become less likely to lend and pull back on their investments, which could have a huge impact on venture capitalists, who have invested in dozens of cryptocurrencies, and make it difficult to create the tools and services needed to make Bitcoin, Ethereum, and Solana more valuable and useful.
What Now?
Financial institutions are at high risk as they are essential for the functioning of the financial system. When lending is pulled back suddenly or there is a credit crisis, it can have an economic impact on the entire economy, as we saw in 2008-2009.
The Labor Department’s February jobs report brought some good news this morning, with the U.S. economy adding 311,000 nonfarm jobs last month, although the unemployment rate rose from 3.5% to 3.6% as more people entered the workforce in search of work. This indicates that the slowdown in the tech sector, the collapse of crypto prices, and the fall of some banks has not yet had an impact on the wider economy.
Investors with a long-term perspective should begin to view this as a potential buying opportunity for high quality cryptocurrencies. Despite the drop in token prices, the cryptocurrency industry continues to grow and innovate which will ultimately drive value. If the downturn worsens, then investors may be presented with a great chance to buy in.
In conclusion, innovation in blockchain will win in the long-term, and Ethereum and Solana blockchains are where most developers are building, so if the crash gets worse, you might be looking for a buyer.
SVB Financial Offers banking and credit services The Motley Fool. Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, SVB Financial, and Solana. The Motley Fool has a disclosure policy.
