According to a new bankruptcy filing, defunct cryptocurrency lender BlockFi has $227 million worth of unsecured funds allocated to a money market mutual fund (MMMF) offered by troubled Silicon Valley Bank (SVB).
SVB, one of the largest banks in the United States and a key partner of venture-backed companies, was shut down by the California Department of Financial Protection and Innovation on March 10, with no specific details available at the time of the shutdown.
The move adds to the recent tragedy of the Silvergate bankruptcy, which has seen cryptocurrency markets plunge since the financial woes of this crypto-friendly bank came to light in early March.
Few more bank collapses then up only
— sassal.eth (@sassal0x) March 10, 2023
Few more bank collapses and then only up
If you look at BlockFi’s ongoing bankruptcy case, a March 10 filing indicates that the company has $227 million worth of capital in an MMMF offered by SVB.
In particular, the filing highlights a balance summary statement from SVB, which states that BlockFi’s investment is not a Federal Deposit Insurance Corporation (FDIC) insured deposit, is not insured by any agency of the federal government, and ” It is not guaranteed by the bank.
The FDIC’s federal deposit insurance covers up to $250,000 per depositor, but does not cover the scope of money market funds.
A money market mutual fund invests in highly liquid short-term instruments, such as cash, cash equivalents, and high-quality short-term debt instruments, and is regulated by the United States Securities and Exchange Commission.
Investors receive shares of the fund in exchange for their capital, so BlockFi’s funds may not be in danger despite SVB’s woes.
Is this a regular MMF, not affiliated with SVB, guarded at SVB or its securities affiliate? The SVB receivership shouldn’t affect that. The MMF is not FDIC insured, but the shares’ value would depend on what’s in the MMF, not what happens to SVB.
—Matt Waters (@mattwwaters) March 10, 2023
Is it a normal MMF, not affiliated with SVB, held at SVB or at its securities subsidiary? The suspension of payments of the SVB should not affect this situation. The MMF is not FDIC insured, but the value of the shares will depend on what is in the MMF, not what happens to SVB.
SVB offered various mutual fund investment services, but according to its website, it does not appear to have managed any of the funds. The company lists big names like BlackRock, Morgan Stanley and Western Asset Management as fund managers.
Therefore, the risk for BlockFi in this case is probably the performance of the fund, not anything related to SVB’s financial problems.
One company that seems to be directly affected by the closure of SVB – and the bankruptcy of Silvergate – is Circle, issuer of USD Coin (USDC).
According to the company’s latest audit report, as of January 31, $8.6 billion, or about 20% of its reserves, was on deposit with various US financial institutions, including SVB, Silvergate Bank and Bank of New York Mellon.
The exact value held at SVB and Silvergate is unclear; however, Circle issued a statement via Twitter on March 10, noting that the company and USDC will continue to “operate as normal” pending “clarity on how the FDIC receivership of SVB will affect their depositors.”
Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.https://t.co/NU82jnajjY
—Circle (@circle) March 10, 2023
Silicon Valley Bank is one of six banking partners Circle uses to manage ~25% of USDC cash reserves. Pending clarification on how the FDIC receivership of SVB will affect their depositors, Circle and USDC continue to operate as normal.
As of this writing, USDC has broken below the $1 level and is sitting at $0.98, according to data from CoinGecko.
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