‍About: Investoom Weekly is the newsletter by the market intelligence company Investoom that provides AI-powered investment insights through social sentiment data, onchain data and financial data. Investoom democratizes the access to hedge fund insights.

Overview of the topics

• Stocks Highlights: The Silicon Valley Bank Financial Group has just initiated filing for Chapter 11 bankruptcy protection.
• Financial Data: On March 8 SVB surprised US investors by announcing that it needed to raise $2.25 bn to shore up its balance sheet.
• Social Data: Retail investors remained relatively calm according to the latest data from the sentiment indicator SERIX.
• Onchain Data: Major cryptocurrencies experienced a rise in value owing to the US government's plan to protect depositors.
• Deep Dive: Credit Suisse's shares continued to plummet by 8% on Friday.

‍

Stocks Highlights

SVB files for Chapter 11 bankruptcy

The Silicon Valley Bank Financial Group has just initiated filing for Chapter 11 bankruptcy protection. This decision comes shortly after the bank was taken over by US regulators, indicating concerns about its financial stability and ability to continue operating.

This means that the bank has filed a voluntary petition in the US Bankruptcy Court for the Southern District of New York, seeking court supervision for the reorganization of its assets, and looking for potential buyers. This comes after the bank announced the plans to explore strategic alternatives for its businesses, including SVB Capital and SVB Securities. However, their funds and general partner entities are not part of the Chapter 11 filing.

The collapse of SVB has been described as the biggest financial crisis since the Global Financial Crisis of 2008, causing panic among start-ups around the world due to immediate working capital concerns. Indeed, many early- to mid-stage start-ups typically deposit their funds into SVB accounts as soon as they were able to raise venture funding.

‍

Financial Data

America’s second-largest bank failure

On March 8 Silicon Valley Bank surprised US investors by announcing that it needed to raise $2.25 billion to shore up its balance sheet. The statement, coupled with dislocations spurred by higher rates, led to a rapid collapse of the bank.

The panic that ensued was induced by the venture capital community that Silicon Valley Bank had served. Within 48 hours, regulators shuttered SVB Friday and seized its deposits in the largest US banking failure since the 2008 financial crisis and the second-largest ever.

As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, exacerbating its financial situation. The sudden need for capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals while VCs instructed their portfolio companies to move funds. The concern was that a possible bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.

Prominent funds such as Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic. Customers withdrew $42 billion of deposits by the end of Thursday, according to a California regulatory filing. By the close of business that day, SVB had a negative cash balance of nearly $958 million and failed to scrounge enough collateral from other sources.

The highly interconnected nature of the tech investing community played a key role in Silicon Valley Bank’s sudden demise. The fallout from the FED's actions to stem inflation with its most aggressive rate hiking campaign in 4 decades could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.

‍

Social Data

What was the reaction of investors?

Last week, there were concerns for Silicon Valley Bank, but retail investors remained relatively calm according to the latest data from the sentiment indicator SERIX, regularly released by Spectrum Markets.

The average sentiment for both the NASDAQ and the S&P 500 increased compared to the past week, with both indexes crossing the 100 thresholds to enter the bullish area. On Monday, there was a notable rise in activity, but it didn’t undermine the overall sentiment. SERIX sentiment remained stable, indicating that retail investors did not believe the situation to be severe. This week, however, the ECB's interest rate hike schedule and rhetoric will be tested, offering insight into market reactions.

But how is the index calculated? SERIX is a pan-European index calculated by analyzing retail investor trades and subtracting the bearish proportion from the bullish proportion. The resulting figure, rebased at 100, indicates sentiment strength and direction. Furthermore, while long instrument buys and short instrument sells are considered “bullish trades”, long instrument sells and short instrument buys are considered “bearish trades”.

Even if the collapse of Silicon Valley Bank had all the characteristics of an old-fashioned bank run, it was unique in that much of it played out online. Founders and CEOs responded to Twitter warnings from venture capitalists by withdrawing funds on mobile devices and online at such a speed that banking services appeared to go down. In particular, it was the bank's tech-focused customer base, which had large sums kept by venture-backed businesses, that made it uniquely susceptible to panic spreading online.

In fact, the recent bank run highlights the challenges of managing a fast-moving financial crisis in a digital age. The speed at which information, and access to financial services, spread on social media exacerbates the risks of a panicked run on uninsured deposits, but there are few options for public policy solutions to curb social media's role in the crisis, since “free speech rights are free speech rights". Some suggested that banks should increase their social media presence and engage proactively with customers as a means to manage bad information, but this may be insufficient to mitigate the risks posed by social media's impact on financial markets.

Onchain Data

The effects of SVB on the crypto market

On Monday, major cryptocurrencies experienced a rise in value owing to the US government's plan to protect depositors of Silicon Valley Bank and Signature Bank.

The FED made an announcement stating that both insured and uninsured depositors of SVB would be safeguarded, providing complete protection to their deposits. While the risk of a banking contagion was lower, it still exists. For this reason, the crypto market witnessed a surge in prices of bitcoin and other assets, causing the overall market value to surpass $1 trillion, up by 14% day over day. In the last 24 hours, Bitcoin saw an 18.4% increase to over $24,000, while ether experienced a 15% rise to approximately $1,700.

However, in the past weeks, two of the major banks known for their support of the crypto sector failed. In fact, Silvergate Capital, a central lender to the crypto industry, announced that it will be winding down its operations and liquidating its bank, while SVB collapsed after depositors withdrew over $42 billion.

Moreover, the instability once again showed the vulnerability of stablecoins, a subset of the crypto ecosystem investors can typically rely on to maintain a set price. Stablecoins are supposed to be pegged to the value of a real-world asset, such as a fiat currency like the U.S. dollar or a commodity like gold. But unusual financial conditions can cause them to drop below their pegged value.

‍

Community

Interested in what the other readers think about it? Join our community on Discord and discuss our insights with other investors! [Join Discord]

‍

Deep Dive

Credit Suisse continues plummeting

Despite reassurances from central banks and politicians regarding the stability of the global banking industry after the collapse of two US banks, Credit Suisse's shares continued to plummet by 8% on Friday.

The bank had recently secured a £45bn emergency loan from the Swiss National Bank to address liquidity concerns. However, more than $450m was withdrawn from its US and European-managed funds between March 13 and 15 as investors pulled their money out. Invite 3 friends to read the full article.

‍

News of the week

• Banks: Wall Street ends sharply lower on bank contagion fears. [Read more]
• Technology: Samsung joins Korea’s $400 billion bid to lead in key tech. [Read more]
• Markets: Support for troubled banks calm markets. [Read more]
• Investments: Saudi Arabia could invest in Iran 'very quickly' after the agreement. [Read more]

‍

Read the full version here.

‍

About

Investoom is a Munich-based Fintech Startup democratizing the access to quantitative investment insights that are used by big hedge funds, but are inaccessible to retail investors. We are a market intelligence company that provides AI-powered investment insights through social sentiment data, onchain data and financial data.

Disclaimer: The Investoom newsletter is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions. [Read more].

Advertising and sponsorship do not influence editorial decisions or content. Third party advertisements and links to other sites where products or services are advertised are not endorsements or recommendations by Investoom. Investoom is not responsible for the content of the ads, promises made, or the quality or reliability of the products or services offered in any third party advertisement.