The disaster at two California banks sparked a CNBC dialogue on cryptocurrency and expertise in banking developments.
Ark Invest’s Cathie Wood thinks some conventional banking norms will someday get replaced by a brand new expertise.
On CNBC March 9, Last Call host Brian Sullivan stated the present disaster at Silvergate Bank (SI) – Get Free Report and Silicon Valley Bank (SIVB) – Get Free Report is horrifying.
“Do you worry that there is a greater contagion risk from Silvergate and Silicon Valley Bank or do you think, again, it is kind of contained within those two?” Sullivan requested Wood.
“Certainly there was contagion last year,” she stated. “We often describe what happened last year as a crisis in crypto.”
Wood stated the disaster was proof of an idea.
“It was centralized, opaque institutions that failed,” Wood stated. “And some of that was because of fraud. If you looked at the blockchain technologies of Bitcoin blockchain and Ethereum, they really didn’t skip a beat.”
Wood acknowledged that their costs went down. She stated that if one seemed on the manner they had been processing transactions — the good contracts, the automated margin calls — they labored positive.
“We think that it proved the concept that decentralized, transparent ecosystems are going to do much better, we think, than centralized institutions that are opaque,” Wood defined. “And actually, in the case of these banks, maybe took on more risk that people didn’t know about.”
She instructed the world is shifting towards a spot the place digital wallets will ultimately exchange some types of conventional banking.
“Allowing users to transact on their smartphones, digital wallets are replacing cash and credit cards,” Wood wrote in January. “They overtook cash as the top transaction method for offline commerce in 2020 and accounted for ~50% of global online commerce volume in 2021.”
Wood additionally stated she believes Silicon Valley Bank is similar and variations with different banks.
“We look at the mismatch between their assets and liabilities,” she stated. “When money came gushing in during the covid crisis, with all of the stimulus money, Silicon Valley Bank put a lot of that to work in what, at the time, were high-yielding assets that averaged only 1.6 or 1.7 percent.”
“Today, in order to attract and maintain deposits, you have to pay up,” she continued. “And banks are not paying up, and they are all seeing their bank deposits go down.”
Silvergate Bank, one of many few banks to embrace the crypto sphere, is out of enterprise, affected by its publicity to the quite a few bankruptcies of crypto companies since final summer season.
The firm “announced its intent to wind down operations and voluntarily liquidate the bank in an orderly manner and in accordance with applicable regulatory processes,” it stated in a press launch on March 8.
Source: www.thestreet.com
