Reports have shown that BlockFi also has $227 million in the troubled Silicon Valley Bank, which wasn’t insured. Notably, SVB is not managing the fund directly.
As the saga of the Silicon Valley Bank shutdown continues, more victims are emerging. The first to feel the brunt was Circle, the firm behind the popular USDC stablecoin. It attempted to withdraw its $3.3 billion from the embattled bank but failed.
BlockFi Bankruptcy Case Filing Reveals Money In SVB
BlockFi filed its Chapter 11 Bankruptcy on November 28, 2022. One of the reasons for the action was the FTX collapse earlier that month. The crypto lender was part of the victims of FTX and its sister company Alameda Research.
It had rendered loans to Alameda Research and failed to retrieve them before the FTX crash. It even had some issues trying to grab Robinhood shares worth $450 million, which SBF purchased and used as collateral for the Alameda Capital loan.
As the Silicon Valley Bank issue erupted, the investigators discovered that BlockFi had kept $227 million in SVB’s money market mutual fund (MMMF). SVB’s balance summary statement shows that the amount is not insured under the FDIC or any other federal government agency and is not guaranteed by SVB.
Since SVB is not managing the fund directly, BlockFi’s risks will depend on how the fund performs and not the SVB’s financial issues.
A Brief On Silicon Valley Bank MMMFs
Money market mutual funds directly invest in “highly liquid near-term instruments” like high-quality short-term debt instruments, cash, and cash equivalents. The US Securities and Exchange Commission regulates these funds, and the FDIC’s federal deposit insurance covers up to $250,000 per fund depositor.
SVB offered many mutual fund investment services to its customer. The silver lining is that the bank doesn’t manage these funds directly. Some fund managers listed on its website include Morgan Stanley, Western Asset Management, and BlackRock.
Due to the MMMF model, investors in the fund will usually get its shares for their capital. BlockFi will not lose its millions in the SVB fund.
But one troubling aspect of the SVB issue is that the bank had always acted as an investor to investors. It had a venture capital and credit investment unit that invested directly into many portfolio companies and fund managers.
In a Fortune report, some of the firms SVB has invested in include Spark Capital, Greylock, Sequoia Capital, Kleiner Perkins, Accel, and Ribbit Capital. These firms have benefited from SVB investments enabling them to operate optimally.
2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023
This might be why Circle disclosed that it had joined other investors and firms to call for SVB’s continuity.
Featured image from Pixabay and chart from Tradingview.com
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Eli brings an eclectic point of view to market analysis. He was previously a brokerage director and online trading educator. Currently, he acts as a commentator across various asset classes, including Crypto, Stocks and FX, whilst also a startup founder.