Korbit Publishes SVB Crisis Analysis Report... "Fed Rate Hike Probability Will Decrease"

On the 15th, the Kobit Research Center, under the domestic virtual asset exchange Kobit, announced the publication of a special report urgently analyzing the bank run and closure incidents of Silvergate Capital, Silicon Valley Bank (SVB), and Signature Bank.

The Kobit Research Center analyzed the characteristics of these US-based financial institutions, the commonalities and differences in the recent incidents, and the potential impact on the virtual asset market going forward.

First, these financial institutions specialize in different fields. Silvergate is specialized in the virtual asset industry, SVB operates primarily with startups, and Signature Bank focuses on businesses in the New York area. Therefore, in terms of virtual asset exposure, Silvergate's deposits are over 80% related to virtual asset exchange cash deposits and related industry bases, SVB holds deposits from some virtual asset companies and project foundations, and Signature Bank has shown interest in virtual assets since 2018, with 20-30% of its deposits coming from this sector.

The Kobit Research Center viewed their common vulnerability as debt. The assets of these banks were composed largely of cash equivalents, long-term government bonds, and mortgage-backed securities. This composition is not significantly different from other banks. Traditionally, banking difficulties arise mostly from non-performing loans among held assets, but the assets of these three banks were generally composed of high credit-rated assets, indicating no non-performing loans.

However, when bank runs occurred due to depositors simultaneously requesting withdrawals amid a deposit base concentrated in high-risk, high-return sectors, Silvergate and SVB liquidated their held assets to respond. In this process, these financial institutions were forced to sell large amounts of long-term bonds at depreciated prices compared to their purchase prices due to interest rate hikes. This led to significant losses and erosion of their capital. Ultimately, they failed to maintain the minimum capital ratio required to continue operations, resulting in suspension of business and liquidation?voluntary in the case of Silvergate, and under government supervision for SVB and Signature Bank.

The Kobit Research Center noted differences in the reasons for the spread of the bank runs and their connection to the real economy. At Silvergate, the cash withdrawal incident occurred following distrust in centralized virtual asset exchanges after the FTX incident last year. In contrast, SVB's bank run was triggered by startups exhausting deposits due to difficulties in raising investments amid interest rate hikes, and Signature Bank experienced a large-scale withdrawal incident as a spillover effect from SVB's liquidation.

The degree of connection these institutions had with the real economy also caused differences in risk spread. SVB, being closely related to startups, was more broadly exposed to the real economy than Silvergate or Signature Bank. However, SVB's financial statements showed a low concentration of risk. Nevertheless, unlike the Silvergate incident, which was confined to the virtual asset industry, the SVB case was perceived as a risk signal for small and medium-sized enterprises and banks, spreading market concerns to the US financial system and the overall economy.

Additionally, the Kobit Research Center analyzed the impact of these incidents on the virtual asset market from the perspectives of macro risk and fiat currency deposit and withdrawal services.

On the macro front, it is expected that the possibility of further interest rate hikes by the US Federal Reserve (Fed) will decrease. Citing examples of sudden halts in the financial system caused by the side effects of the Fed's tightening policies over recent years, and considering that last year's rapid tightening monetary policy played a significant role, the center forecasts a low likelihood of additional rate hikes following the SVB incident. Furthermore, if the Fed's tightening cycle comes to an end, prices of all risk assets, including virtual assets, could rise.

Regarding fiat currency, since Silvergate and Signature Bank were major suppliers of US dollars to the virtual asset market, their business suspensions are expected to reduce market liquidity in the short term. The Kobit Research Center proposed three solutions to fill the gap left by these two banks: ▲ the rise of other US-based virtual asset banks ▲ euro currency alternatives ▲ stablecoins.

Firstly, since Circle has chosen Cross River, a US-based virtual asset-friendly bank, as a partner to replace Signature Bank, future growth is anticipated.

They also pointed out the increasing transaction volume of the euro through the BLINC (BCB Liquidity Interchange Network Consortium) service. BLINC, similar to Silvergate's existing service, is provided by the UK-based BCB Group using fiat currencies such as the euro, pound, and Swiss franc with banks across Europe. Recently, BCB Group announced plans to include the US dollar in its supported currency list, which is expected to help address the gap left by US banks.

Regarding stablecoins, their market share relative to the US dollar has been on the rise over the past several years on centralized exchanges. The Kobit Research Center expects that if US dollar-backed stablecoins are actively issued, their market share could increase further. If US dollar deposit and withdrawal become difficult due to regulations within the US, euro stablecoins issued through more virtual asset-friendly European banks could serve as an alternative.

Jung Seok-moon, head of the Kobit Research Center, stated, "Since this incident is related not only to the US banking sector but also to the overall soundness of the US financial system and the Fed's future monetary policy, we published this special research report to quickly and accurately convey various perspectives within the market." He added, "As a responsible member of the virtual asset industry, Kobit Research will continue to promptly communicate issues deemed important for the long-term development of the market."

This content was produced with the assistance of AI translation services.