According to published reports, BlockFi also owns $227 million in the bankrupt Silicon Valley Bank, which was not covered by insurance.
As the drama surrounding the closing of Silicon Valley Bank unfolds (1) more, other victims are coming to light.
Circle, the company responsible for the widely used USDC stablecoin, was the first to suffer the full force of the impact, and it failed to withdraw its $3.3 billion from the troubled bank despite making the request.
The bankruptcy case filing for BlockFi reveals that there is money in SVB
On November 28, 2022, BlockFi submitted its petition for Chapter 11 bankruptcy. The failure of the FTX earlier that month was one of the factors that led to the action being taken.
The cryptocurrency lender was one of the many people who fell victim to FTX and Alameda Research.
It had extended loans to Alameda Research but could not collect on those payments before the FTX market crash. Even when it tried to get its hands on Robinhood stocks valued at $450 million, which SBF had purchased and was using as collateral for an Alameda Capital loan, it ran into some difficulties.
Throughout the Silicon Valley Bank scandal, the investigators made the startling discovery that BlockFi had maintained a balance of $227 million in the SVB money market mutual fund (MMMF).
According to the balance summary statement provided by SVB, the amount is not protected by the FDIC or any other agency that is part of the federal government, and SVB does not guarantee it either.
Because SVB is not actively administering the fund, the risks associated with BlockFi will be determined by how well the fund succeeds and not by SVB’s current financial situation.
A Quick Overview of Silicon Valley Bank Money Market Funds
Mutual funds that participate in the money market directly invest in “very liquid near-term products,” including high-quality short-term debt instruments, cash, and cash accounts.
The United States SEC regulates these funds, and the Federal Deposit Insurance Corporation provides deposit insurance of up to $250,000 per investor in a fund.
Customers might take advantage of SVB’s wide range of investment services for mutual funds. The fact that the bank does not personally manage these monies is the only bright spot in this cloud. On its website, you may find information on various fund managers such as Morgan Stanley, Western Asset Management, and BlackRock.
Investors in the fund will often have their capital returned to them in the form of shares under the MMMF concept. BlockFi’s millions of dollars in the SVB fund will not be wasted.
Yet one thing about the SVB situation that raises concern is that the bank has traditionally played the role of a lender to investors.
It also had a VC and credit investment section, which both invested directly into many portfolio firms and investment managers.
According to a report published by Fortune, the companies Spark Capital, Greylock, Sequoia Capital, Kleiner Perkins, Accel, and Ribbit Capital are among those in which SVB has made investments. These companies have benefited from SVB investments, which have enabled them to operate at their highest potential.
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 could be why Circle stated that it had joined other investors and businesses in calling for SVB to continue operating.