I heard on a podcast once that in a bull market, nothing that can go wrong does go wrong, but in a bear market, everything that can go wrong does. It certainly feels like the latter has been playing out this week with the implosion of Silicon Valley Bank. In this article, we will give some background on these events as well as an explanation of how taking back control of your money in the form of self-custody can help mitigate some of these risks.
A friend of mine working for an Artificial Intelligence start-up said that word got around Silicon Valley on Thursday that there were issues at the Silicon Valley Bank. Start-ups and big tech companies alike started to request nearly 25% of the total deposits held at the bank. SVB (along with all other banks) have long-term bonds with unrealized losses on their balance sheet due to the increase in interest rates.
Once suspicion of a bank run swept through Silicon Valley, it became a self-fulfilling prophecy. The bank had to sell these bonds at a realized loss of $1.8B and became insolvent trying to fulfill withdrawal requests. It remains unclear what the response will be from the government and what the ripple effects might be on the economy as a whole.
The Consequences of Bank Failures
In the United States, we don’t have this cause for panic yet, but there are definitely signs of trouble. Individuals who had life savings in Silicon Valley Bank were lining up outside the branches with no access to their money all weekend. Under the FDIC, all deposits over $250,000 were uninsured and will still not have access to funds when the banks open. If just 5% of a family’s wealth was held in a self-custody wallet, they would still have access to these funds regardless of the state of the banking system.
How CDARS Preserves Your Wealth
Investors are insured by FDIC up to $250,000 per account. When you have funds that surpass that value, you should consider using the Certificate of Deposit Account Registry Service (CDARS) to preserve your assets, since it provides an added layer of protection against the potential failure of a financial institution.
No bank is too big to fail. We had several examples like Lehman Brothers, and now SVB, Silvergate, and Signature. Even with current regulations in place, banks can still face financial difficulties that may put investors’ assets at risk. Until the market doesn’t reach solutions like the self-custody of our assets, CDARS can be a great alternative to preserve your wealth.
The Urge for Self-Custody
I’ve said this a few times in previous newsletters, and I’ll say it again: I highly recommend you do your own research on self-custody. We keep saying it won’t happen in the US or it won’t happen to my bank, but it is happening today on US soil with $175.4 Billion US Dollars.
Recent bank failures, such as Silicon Valley Bank and Silvergate, have highlighted the importance of self-custody as a portion of your investment portfolio. Even with regulations in place, banks can still fail, leaving investors vulnerable to the loss of their assets.
By self-custodying a portion of their portfolio, investors can reduce their exposure to these types of risks. This way, you have direct control over your assets and can access them at any time. This action can provide a level of security and peace of mind for investors when events like those happen. It’s a grim thought, but for those with money in Silicon Valley Bank, it’s the difference between having access to your wealth one day and not the next.
Joe Robert is currently the Chief Executive Officer of Robert Ventures, with over 20 years of asset management experience. Since he started Joe has created predictable double-digit returns for investors & Partners. Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top cryptocurrencies.
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