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The media loves to tie anything negative to cryptocurrency. We see FUD repeatedly tossed around. This is the same rhetoric that we hear regularly, meant to cast the industry in a negative light.
In the end, even though Circle had some exposure, this was not a cryptocurrency related event. The decisions of that company are exclusive to them.
We are often told how it is crypto's fault when something happens. Take the FTX situation. We all know what Sam Bankman Fried is. However, when people like Mike Novogratz had hundreds of millions tied up with that exchange, what does that tell you?
Isn't he (or his firm) suppose to access the risk and decide what is taking place? Who was running the money at that fund that was keeping an eye on things? While FTX and SBF do not get a pass, neither should the money managers who were too foolish (or greedy) enough to engage with an entity like that.
Silicon Valley Bank
So what is the problem with Silicon Valley Bank?
In short, this is a real estate story. It is also one of the issues with smaller banks. They tend to not know what they are doing and will end up losing people a lot of money.
Silicon Valley is a hot bed for technology. Everyone is aware of this. It is also a mecca for insane real estate prices. The market there is absolutely crazy. Of course, recent events in that area, i.e. layoffs, have led to a reversal in conditions. This does not bode well for a bank like SVB.
The Fed is raising interest rates. Here we have another problem not only for the real estate market but also a bank like this. Since most of the loans in that area were jumbo loans, the bank had them on their balance sheet. This forced a tightening of conditions as defaults ticked up as well as put the bank in a liquidity crunch.
Of course, other measures such as tax increases and other policies had an impact in different areas. This is all leading to a bad situation for these small banks. That said, it is region specific since the real estate market is being affected differently based upon the area.
Ultimately, Silicon Valley Bank believed the party would continue forever. It was, after all, the tech center of the world. There is no way we would ever see a pullback in demand there. They obviously do not understand how layoffs work.
Business Cycle
Cryptocurrency is not going to change the business cycle. We often discuss changing the financial system. While banks are a problem, eliminating them with FinTech, crypto or not, is not going to solve things.
The reality of the situation is the mass layoffs in Silicon Valley were due to the fact that the tech executives were no more adept at managing the business cycle than the bankers. They expanded their operations on the way up, believing things would keep going. When it became evident this was not a lull, they started to reverse course. Unfortunately, the bloodshed already started.
We are dealing with an entity that is undefeated for centuries. As we try to combat the business cycle, we only get run over by it. Central banks believe they can fix it; they cannot. Goldbug believe it is due to the wrong money and commodity based currency is the answer; it is not. Bitcoin Maxis feel Bitcoin can solve it all: it won't.
And most of cryptocurrency is resolute that if the bankers just went away, we would cure it.
This is not the case either.
The business cycle is grounded in basic human psychology. We all get caught up in the good times, often forgetting how painful the last downturn was. Of course, the flip side is the doomers who always preach this is the big one, not realizing things do eventually turn.
Cryptocurrency will not shield us from this reality. If anything, we have shown the propensity to fall right in line. The boom-bust cycles of cryptocurrency are rather powerful. We are no different than anyone else.
Back To The Basics
It always comes back to the basics. Risk management, cash position, solid business building, and an awareness of where we stand are vital. It is important to know the music always stops whether it is Girls Just Wanna Have Fun or Taps that is playing.
Contrary to what the media is portraying, the issues of the world are not caused by cryptocurrency. At this moment, we really are a flea on the back of a dog. With a market cap of around a trillion dollars, we don't have enough might to sink a rowboat.
Keep this in mind when the media wants to tie things to cryptocurrency. There is a good chance crypto was just a bystander in it all.
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