Silicon Valley Bank Rocks Crypto and Equity Markets Ahead of Jobs Report

Analysts are worried that other tech-friendly lenders will face similar problems to Silicon Valley's.

AccessTimeIconMar 10, 2023 at 11:24 a.m. UTC
Updated Mar 10, 2023 at 5:57 p.m. UTC

Risk aversion is in full swing, thanks to a crisis at Silicon Valley Bank (SIVB), a pivotal lender to tech startups.

On Thursday, the self-described financial partner of the innovation economy sold off a $21 billion bond portfolio for a considerable loss to shore up its liquidity, sending shock waves across financial markets. The bank's issues reportedly stem from the Federal Reserve's aggressive rate hikes and the resulting slide in bond prices and rise in yields. (The two move in the opposite direction.)

The market is worried that other lenders might also be facing problems similar to Silicon Valley's. That's evident from the sharp slide in U.S. banking stocks and their European peers. The KBW Nasdaq banking index fell over 7% on Thursday, registering its biggest single-day decline since 2020.

Bitcoin (BTC) and ether (ETH) have each declined by 8% in the past 24 hours, reaching two-month lows. In the meantime, U.S. Treasurys have had safe-haven flows. The 10-year yield traded at 3.85% at press time, down 15 basis points from Thursday's high of 4%. The two-year yield has dropped to 4.83% from 5.07%.

"Silicon Valley Bank (SIVB), another crypto-friendly bank, comes under pressure. The bank is generally regarded as one of the default fallback options for industry participants impacted by the collapse of Silvergate. Operation Chokepoint 2.0 continues tightening its grip," Ilan Solot, co-head of digital assets at Marex, said in an email, referring to Silvergate Bank, a crypto bank that is closing down, and to a government crackdown in 2013 on banks that did business with the gun sellers.

This might be the first instance of bond yields falling along with stocks and cryptocurrencies since the Fed began its tightening cycle last year – a good old-fashioned risk aversion where investors seek safety under bonds. Perhaps investors are expecting the Fed to slow down its tightening cycle in the wake of stress in the banking system.

"Pressure on the US banking system is questioning whether the Fed can push ahead with such an aggressive tightening cycle. This has seen US two-year Treasury yields drop 25bp over the last two days alone. This is dollar bearish," Chris Turner, head of FX strategy at ING, said in a market update. Weakness in the dollar usually bodes well for risky assets.

Data from fed-funds futures show the probability of the Fed raising rates by 50 basis points to the range of 5%-5.25% later this month has declined to 54% from 75% on Wednesday. The forecast for the terminal rate, the level where the tightening cycle is likely to end, has also declined to 5.5% from 5.65% reached early this week after Fed Chairman Jerome Powell's hawkish testimony.

According to ING, systemic risk could wipe out bets for 50 basis point rate hikes, but nothing as of now suggests there is a widespread issue in the banking sector. So, yields and rate hike odds could rebound, adding to bearish pressures around risky assets in case the payrolls data blows past expectations.

According to Reuters, the U.S. jobs report for February will likely show a payrolls increase of 205,000 in January, marking a slowdown from January's blowout 517,000 figure. Wages are forecast to have increased 4.7% year-over-year in February, compared with January's 4.4%.

A big miss on expectations might lift the mood in the crypto market, bringing a relief rally.


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Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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