Analyzing the Impact of Silicon Valley Bank’s Collapse through community buzz
In this analysis, we’ll take a look at the SVB (Silicon Valley Bank) crisis and break down exactly how it impacted the market by comparing the community buzz figures to that of other major crises that the market has undergone.
The SVB Crisis Explained
On March 10, 2023, Silicon Valley Bank suddenly collapsed and became the largest bank to fail since the 2008 financial crisis. The bank was closed by California banking regulators, and the Federal Deposit Insurance Corporation (FDIC) was appointed as its receiver for asset disposition.
The bank had approximately $209 billion in assets and was ranked as the 16th largest bank in the U.S. The bank’s failure was attributed to the Fed’s aggressive interest rate hikes, which crimped financial conditions in the startup space. The bank lost $1.8 billion on Treasury bonds due to the Fed rate hikes, which contributed to the bank’s collapse. 89% of the bank’s $175 billion in deposits were uninsured at the end of 2022, but luckily, the US government recently announced that they will fully guarantee the deposits.
Past Cases: Luna and FTX
Terra Luna was a popular cryptocurrency and one of the top 10 largest coins by total market capitalization until a crash wiped out over 99.9% of its value. Terra was a blockchain platform for creating stablecoins and smart contracts, while Luna was its native cryptocurrency token used for transactions, paying gas fees, and participating in the platform’s governance system.
UST was a stablecoin in the Terra ecosystem algorithmically pegged to the value of $1 with Luna as its backing asset. The crash occurred when $2 billion worth of UST was unstaked from the Anchor Protocol and sold, causing the UST price to drop to $0.91 cents. At the same time, the crypto market was experiencing a major crash, which caused the price of Luna to drop below UST, de-pegging it and causing investors to lose confidence in the project.
The increased supply of Luna on crypto markets and the de-pegging of UST ultimately caused the price of Luna to crash until it was nearly worthless, and it was delisted from most major crypto exchanges.
The FTX collapse was prompted by a report that Alameda Research, a quantitative trading firm also run by FTX CEO Bankman-Fried, held a $5 billion position in FTT, the native token of FTX. Customers withdrew $6 billion in the days following the report, and the value of FTT fell over 80% in two days.
Bankman-Fried sought additional funding from venture capitalists and turned to rival Binance before filing for bankruptcy on November 11. A class-action lawsuit was filed on November 16, and Bankman-Fried was arrested and jailed on December 12 in connection with multiple fraud charges.
Comparison of Crises
The graph above demonstrates community buzz volume comparisons of the three crises. We can see that the community buzz for Luna was at approximately 25,000 at its peak, while community buzz for FTX shows a 200,000 figure.
We can quantify the significance of certain events based on its community buzz. Luna, for instance, was valued at $36B in market cap before its crash with over $12B in UST deposits.
FTX, in a similar vein, was valued at $32B in April 2022. You may think that it’s odd to see the massive difference in community buzz between Luna and FTX, when the damage translated to monetary figure doesn’t vary too much. That is because for the FTX incident, it’s only reasonable that we also consider the entire indirect, collateral damage it has caused in the market.
For instance, Solana and its entire ecosystem saw massive growth in 2022, thanks to SBF’s direct support behind the platform and its projects. At its peak, Solana alone, excluding any other projects in the Solana ecosystem, had a market cap of $78B. It’s also not an exaggeration to claim that the catalyst for Bitcoin’s recent bear market (although the market was well overheated at its peak in 2022), was the FTX incident. Thus, taking all matters into consideration, it’s extremely reasonable to see massive community buzz for FTX compared to that of Luna.
So what about SVB? Apparently, it’s supposed to be the biggest bankruptcy since 2008. SVB had $209B in assets, so it may appear logical that we see the highest figure in community buzz. However, there’s a catch. SVB may have had $209B in assets, but it also had $195B in liabilities, leaving only approximately $15B in its own equity. So relatively speaking, the scale of SVB’s bankruptcy is much smaller than that of Luna or FTX.
Additionally, prior to SVB declaring bankruptcy, the bank’s stock was trading at a $16B valuation. Thus, seeing a relatively small figure of community buzz for SVB is reasonable.
The Impact of SVB’s Bankruptcy on the Market
The graph above demonstrates community buzz sentiment, plotted against Bitcoin’s price. We can see that the sentiment is predominantly negative, as the news is about the 16th largest bank in the US going bankrupt.
Above, we can see the total mentions of SVB, and identify community buzz. Plotted against Bitcoin’s price, we can see that the news did not have a negative effect on Bitcoin’s price, as one would normally expect.
This is because the market reacted to the news as elimination of uncertainty; Ken Fisher once famously said that uncertainty does more harm to the market than bad news itself. Once the bad news is announced and uncertainty is cleared, the market, contrary to common belief, actually recovers in some cases.
That is what we’re seeing in the graph above as well. With SVB news being announced, the market reacted to the news as uncertainty being resolved, as opposed to another black swan event. As a result, we saw Bitcoin bounce from $20k levels to $25k within a matter of a few days.
In summary, the analysis above demonstrates how community buzz is a great indicator of market impact in case of crises that the general public generally tends to recognize as ‘black swan events’. Through community buzz figures, we can indirectly track the impact of a certain event on a market, and how the market reacts to bad news.
Analyst: Kevin Lee @ Catalyze Research