Silvergate, SVB bank failures created ‘a huge problem’ for crypto: Investor

Yahoo Finance
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Kavita Gupta, Delta Blockchain Fund General Partner, joins Yahoo Finance to talk about the collapses of Silicon Valley Bank and Silvergate, what they mean for the crypto market, and what's next for customers of the banks.

Video Transcript

DAVE BRIGGS: Silicon Valley Bank's collapse has sent many startups and their investors into pandemonium over the past several days. While the federal government has said all customers will have deposits returned, there's still concern for what's next at the early stage companies that banked with SVB. Joining us now is Kavita Gupta, Delta Blockchain Fund general partner. Kavita, nice to see you. You have some investments tied up with some SVB clients. What are you hearing from them, and just your reaction about everything that continues to unfold over the past couple of days?

KAVITA GUPTA: First of all, thank you so much for having me. It's been crazy. It is like one of the most unexpected news which you hear, right? Because you think of banking failures, I mean, I have seen 2008, 2009, and now a bank, which is actually long on US bond and Treasury and because of the interest rate hike, is actually now shutting down and has shut down a lot of technology innovation is something completely unexpected.

What we have been seeing is over the weekend, most of the companies, especially Series A, Series B, and like even earlier companies with Silicon Valley Bank, has gone out to get were thinking about, are they going to make their payrolls? Are they actually, whatever the raise they had in the bull market, will they be able to hold it, or they just have to shut down?

Now, thank God they are going to get their money back. But the problem doesn't stop there. The problem is, where do they take their banking platforms to? Because there seems like a ripple effect, as we have seen, over other regional banks, so you are left with the top four banks. So getting your KYC, even if you are getting money, which bank account do you take to? And then connecting it to Myspace, which is blockchain and crypto, where most of the bigger banks are not even doing KYC, are not very friendly to, are still stuck. Where do they go?

SEANA SMITH: So where do they go? What happens to these companies? And you talk about how complicating this is at this point. Is this something-- I guess, how long do you potentially see these problems lingering for?

KAVITA GUPTA: Seana, it's been kind of split-- it's been crazy because a lot of these companies thought that they can go to USDC or have stablecoins account. And we saw for the first time USDC, which is the most trusted stablecoin in the space, to be depegged all the way to 0.9, 0.91. And so it creates a huge problem for the blockchain crypto community of where do they take their money.

A lot of founders who are outside US have-- are from outside US have some linkage, they are literally moving out and doing the KYCs from Portugal to Dubai to Singapore. We are seeing a big exodus of moving money into back to stablecoin and then back outside US. But there is no clear path. There is no rule of thumb anymore. It's just like whatever you can figure out and do. So for the blockchain crypto community, it's actually the three biggest friendly-- crypto-friendly banks, Silvergate, Signature, SVB, all three have disappeared. So apart from Cross River, there doesn't seem to be any options out there.

DAVE BRIGGS: What do you make of the sudden rise, given all you just laid out, of Bitcoin today up more than 9%? How do you make sense of that?

KAVITA GUPTA: That is just because going back to having a trust into something which is not controlled by government and regulations are not influenced by it, you know? And that's where the crypto community, during even COVID time when everybody was just printing money and inflation was increasing, we saw a rise, a big summer for crypto. And I feel like it's absolutely the same thing. There is now the prices are going up for Bitcoin, for Ether, because even the stablecoin, as we saw on the weekend, just because they are pegged to a Fiat currency or government backed currency, doesn't seem to have trust from the crypto community.

SEANA SMITH: Kavita, how does this change the way that you think about your future investments, given all this uncertainty?

KAVITA GUPTA: You know, it's very funny. I actually tweeted about it. When US and when US-based companies used to ask us and give us option between sending them stablecoin versus bank buyers, we always went with bank buyers because we were always way more comfortable with that. Now we are also thinking about will they even have an option of bank wire? If they can figure it out, that's great.

But if they don't, we also don't trust stablecoins between USDC and USDT. I still have more comfort in USDC, but that is only because the government and the bigger banks are supporting as of now. But they lost three of their banking partners out of six. So what does the future look like is very interesting. More faith in companies outside US and blockchain crypto space today, which is sad because it's such a big innovation for US economy to lose on.

DAVE BRIGGS: Indeed. Kavita Gupta, best of luck as you navigate all this really appreciate you being with us please keep us up to date with how it all goes, all right?